Understanding Debt Settlement Services

Perhaps you are in need of some form of credit card debt relief for your unsecured debt problem. With all the talk in the media these days about debt settlement programs, you may have decided that it’s time for you to finally take control of your situation and move forward with debt settlement services. But before you act too quickly, make sure you understand that there are other credit card debt relief solutions available besides debt settlement, and that these alternatives may actually be a much better choice for you.

Photo by Bryan Rosengrant.

A brief discussion of debt settlement services should give you a better idea of some of the factors involved in the decision-making process. A debt settlement company will negotiate with your creditors on the balances that you owe. In most cases, they can negotiate a 40% to 60% reduction of your unsecured debt and have you debt-free within just a few years. In contrast, if you are currently making minimum payments on your accounts and you have high balances and interest rates, you probably will be paying off your unsecured debt for 25 years or even longer. Obviously, this could be a tremendous benefit to you. So there must be a corresponding downside to debt settlement programs, as there is with any credit card debt relief solution.

Why would your creditors be willing to negotiate? In order to do so, they must believe that it represents their best opportunity to receive any money at all from you. So you will need to stop making payments to each of them, and instead begin making a single consolidated monthly payment to the debt settlement company. They will accumulate your payments in a trust account, from which only you can authorize payments to your creditors.

Since you will stop paying your creditors, your credit score will suffer significant damage, although not nearly as much as if you had chosen bankruptcy as your debt solution. And here is where fitting the proper debt solution to the given situation comes in. Maybe your debt crisis is not serious enough to warrant the downsides of either a debt settlement program or bankruptcy, and instead debt management (credit counseling), which causes no credit score damage at all, would be a more appropriate solution. There are still more debt relief options, but at this point you should already be able to see that a debt settlement program is just one of several possible choices from which to select. Your best move is to get in touch with a debt counselor and seek professional credit card debt advice, as the factors they will consider extend far beyond the scope if this introductory article.