Is it Possible to Settle my Debt for Less than I Owe?
The answer to this question is YES.
The primary objective of debt settlement is to pay less than you owe, and this is what almost every debt settlement company promises.
So, the actual questions that should be here are:
- How much less?
- What is the time period for this to happen?
- Could it be financially harmful somewhere down the road?
If you trust those ads that try their best to make you believe that paying back pennies on the dollar is a sure thing, then there is also a chance of winning lottery ticket last Saturday night.
As far as time for the process is concerned, there is a hefty amount of data available to confirm that most cases take 36-48 months. The interest on the debt increases during that time.
So, if you owe the total of $30,000 and a debt settlement firm agreed upon the term of half forgiven, then you only owe $15,000.
So, when you add all this up after 3 years, the settlement of your original debt of $20,000 could cost you around $23,750 ($15,000 for the lender; $3,750 in company fees and $5,000 as government taxes).
Plus, a stained credit report for 7 years.
And that’s if all works out well!
The Process of Debt Settlement Negotiation
The very first step is to decide whether to go for a debt settlement company or lawyer for the negotiation of a settlement. You could also do this yourself, but the key goal is to minimize extensively the amount that you pay and experience helps a lot. So does having the money to make a lump-sum offer. There is no reason to wait, start saving right away.
The next one in the line is meeting with the original lender and asking if they’re willing to settle. In case you have more than 6 months overdue, the debt has probably been given to a collection agency that has the exact opposite goal - To extract the maximum amount of money from you.
You should be aware of the fact that it could take up to 3 years to save enough money to initiate an offer. Typically, you are asked not to pay the creditors and instead send your monthly payments directly to your representative in order to build an account. In the meantime, interest charges grow with your account balance.
Time to make an offer. Be patient. Creditors have no issue in accepting debt settlement offers, but this could be months or even years of process. If the creditor accepts your offer, it must be implemented in writing. Apart from this, place a request to the creditor about sending the major credit bureaus notice that your debt has been fully settled.
Types of Debts Entitled for Settlement
Medical and credit card bills are considered perfect for the debt settlement process because of the simple fact that if the cardholder files for bankruptcy, the medical facility or credit card company could get nothing. The Fed has categorized the credit cardand medical debts as “seriously delinquent,” and this makes them suitable for debt settlement.
Federal student loans are extremely difficult to reach a debt settlement. If somehow reached, a collection agency can accept a lump-sum payment under the following three conditions:
- You pay the current balance of the loan as well as interest. There are no charges for the collection agency.
- You pay the principal amount plus half of the unpaid interest.
- You pay 90% of the remaining principal and interest amount.
When it comes to private student loans (issued by banks), they are considered as a better target for debt settlement as compared to federal student loans. Find out now if you qualify!