Debt relief programs are necessary for many people to navigate their way back from the deep and murky waters of financial hardship and overwhelming debt. Sometimes no matter how hard you work it feels impossible to get ahead. Before filing for bankruptcy, you might want to seek debt relief using a debt settlement program.
Debt settlement is a viable solution for financial relief, which helps you avoid the longer-term credit consequences of bankruptcy. The best debt relief programs use debt settlement to help eliminate large balances in exchange for a smaller one-time lump payment. Debt settlement might save you thousands of dollars but what are its other benefits? What are the risks? Learn how to get debt relief by hiring a professional debt settlement service today.
The concept of paying one’s bills is elementary to most consumers. When a bill is paid off many people tend to think of the debt as settled. Some financial terms have been generally interchangeable for ages but there is a distinct technical difference between paying a debt and settling it in the financial world today.
Paying off a debt implies paying the balance owed in full. This is commonly achieved over time using installment payments but is also possible to do by paying one lump sum equal to the remaining balance and interest charges left on the account.
Debt settlement also utilizes a lump-sum payment to eliminate financial obligations but the similarity between paying and settling debts ends there. When a company accepts a settlement offer, they also agree to accept a lump-sum payment lower than the total amount you owe. If this confuses you or sounds too good to be true, you are not alone.
Why would a creditor accept less money than you owe as payment, while entirely wiping out your entire balance? The answer unfortunately almost always involves a combination of extreme financial hardship and minimizing losses.
Debt settlement is an option for debt relief best used as a last resort to prevent you from filing bankruptcy. If you lost your job or are dealing with serious medical or housing emergencies it is possible you can no longer afford your financial obligations. Instead of taking a total loss your creditors might negotiate a lower lump-sum payment with you.
Creditors benefit from getting at least some money back from you. You benefit from the elimination of a burdensome debt. Debt settlement comes with other risks and burdens, however. The process hurts your credit score because the creditor still reports the debt as a “charge off,” which allows them to use the loss as a tax deduction.
Despite the credit-related consequences, however, obtaining freedom from debt through a debt settlement program might still be the best option available.