Q. Am I a good candidate for debt settlement?
A. If the majority of your debt is from credit cards, then you may be a good candidate for debt settlement. Keep in mind that some types of debt are not eligible for settlement, including federal student loans. Also, some creditors are more likely to settle than others. Your greatest chance of a successful settlement comes from the major credit card companies. You need to ensure you have enough money available in cash to settle your debts - if the company agrees to a settlement, you’ll need cash right away to pay them.
Q. Why would my creditors let me settle my debts for less than what I owe?
A. Debt collection practices are expensive for your creditors. It costs them money to be constantly calling you with collection notices. It costs them money to send you letters. If your debt ends up going to a collection agency, the creditor won’t get the full amount of your payment since a large portion of what you pay will go towards the collection agency. If you declare bankruptcy, they may get no money at all. Debt settlement is beneficial to your creditors if they feel like it’s the only chance they’ll get any money from your account.
Q. Won’t that negatively affect my credit?
A. If you’re at the point where debt settlement is a realistic option, your credit has already been impacted negatively. Your credit score goes down for a number of reasons, the most significant of which is not making your payments on time. Also considered is your debt-to-income ratio, which is the amount of debt you have in comparison to your annual income. If your debt amounts are comparatively high, your credit is already being impacted. If you are near the maximum on your credit cards, even if you’re making your payments on time, your credit is being impacted by that as well. Generally, if you’re considering debt settlement, you’re considering it as an alternative to bankruptcy or other drastic forms of debt reduction which would reduce your credit score more substantially than settlement would. You may also wish to consider working with a quality credit repair company to help restore your credit rating.
Q. How long will it take?
A. How long it takes to complete the debt settlement process depends on where you are right now. If you’re already significantly behind on your payments, the debt settlement process can often begin right away. If you’re not behind on your payments, but just know that you’re in over your head, most companies won’t negotiate a settlement until it looks like you’re in severe financial trouble and months would have to pass before that became apparent. Generally speaking, the whole process can take several months.
Q. How much will I have to pay?
A. Ideally, your settlement amount would be less than 50% of the total you owe to each creditor. It depends on the amount you owe and what the creditor is willing to agree to. While there is never any guarantee associated with debt settlement, settling for less than half of your total owing is not unreasonable to anticipate.