Basically, debt settlement means direct negotiation of your debt with your creditors; if you choose to go through this process, there are some steps you’ll need to take in order to settle your debt and ease your financial burden.
The first step is debt validation. This means giving the debt settlement company all the information they need on your debt, regarding the total amount of the loan, the amount already paid, the outstanding amount etc., basically all the information they need in the negotiation process with the respective creditor.
When considering debt settlement, you should know that not all types of debts can be settled. Secured debts are some of the debts that cannot be settled (as they are guaranteed by the property or other goods making the object of the debt), along with some unsecured ones. The debts that can be settled include student loans, store bills, credit card debts, medical bills or personal loans.
After deciding on the amount for settling the debt,you must make sure you have that amount, as most creditors want to get their money back in a single payment right after an agreement has been made. On paying the respective amount, make sure you have a copy of the payment made and a written statement that the creditor will not have any claim to raise in the future. Make sure that you have copies of all necessary documents in order to avoid difficult situations as creditors changing their mind and not recognizing the debt settlement.
Debt settlement may affect your credit score, as your creditor might not be willing to remove all negative points; you may though be able to convince them to list the debt as “settled”, and this will help improve the credit score a great deal.
If you are thinking of choosing debt consolidation instead, you should know it is a similar process, although it is not the same thing. The same rules should still apply though, and if you’re not sure which way to go it is best to seek professional aid. There are many experienced debt consolidation companies that could help you come up with a plan of consolidating your debt. It is still a long process that can take from a few months to a few years, depending on how well the company representatives manage to negotiate with your creditors.
It is important to maintain some sort of relation with the creditors, to keep them informed and let them know you’re working on a solution to pay them back, but don’t let them know your exact financial details. They should not have all control over your funds, but they should still feel that you’re trying your best to pay off your debt. And once you’ve managed to reach an agreement and paid your debts, you’ll feel the relief of a debt-free life again.