When you feel as though you are in over your head with debt, offloading all or a portion of your personal debt via settlement might seem like a daunting process. But everything in business is negotiable, which is one of its great realities. Even though a product’s price or terms appear to be fixed, obtaining a discount is sometimes as simple as knowing who to ask and how to ask for it.
You might be able to bargain what you truly owe when it comes to the sums on your credit card debt, for instance. You can occasionally reduce your balances by as much as 50% to 70% with a little bit of knowledge and bravery.
The Fundamentals of Debt Relief
A credit resolution service is an arrangement between a lender and a borrower whereby the lender accepts a sizable, one-time payment toward an outstanding balance in exchange for forgiving the balance that is still owed. For instance, someone who owes $10,000 on a single credit card can contact the credit card provider and propose to pay $5,000. The credit card company promises to forgive or delete the remaining $5,000 in exchange for this one-time payment.
Why would a credit card company voluntarily decide to forego a sizable amount of the sum due? It generally happens because the lender is either short on funds or worried that you won’t be able to pay the whole debt off at some point. A crucial point to keep in mind when you start bargaining is that the credit card issuer is attempting to safeguard its financial bottom line in both scenarios.
Credit cards are unsecured loans. Therefore, your credit card company or a debt collector cannot seize any collateral to recoup an unpaid balance.
Negotiating a bill reduction with a credit card provider may seem too good to be true, but it’s not. Unsurprisingly, lenders are reluctant to promote settlement, and the Federal Trade Commission (FTC) thinks that around half of debt settlement cases are successful, despite the lack of independent information on success rates.
Even so, if you’re in serious financial trouble and on the verge of filing for bankruptcy, your lender could be open to accepting a reduced payment in exchange for one last chance for you to turn things around.
Negative Effects of Debt Settlement
Even while a debt settlement offers some significant benefits, such as reducing your present debt burden, there are a few drawbacks to take into account. If you don’t consider these, you can find yourself in an even more difficult scenario.
First, debt settlement typically necessitates that you come up with a substantial sum of money all at once. This is what attracts your lender to the debt settlement since it receives a significantly greater payment immediately rather than the minimum monthly payment for the foreseeable future. You’ll need to pause and think about where the money is going to come from and how you may utilize that money elsewhere in your personal finances. You also want to ensure that making a hefty payment now won’t put you in a difficult place later on.
Second, when the settlement is finalized, you run the possibility of having your credit card account totally canceled. In other words, if you have a bad history of repaying your debt, your lender can stop working with you.
Third, debt settlement may have a negative impact on your credit score. As a result, it will be more difficult for you to obtain credit in the future, much alone credit at favorable interest rates. Consider debt relief if you can wait for your credit score to improve in a few months but still need it to be high.