Debt settlement is a process where a person or an agency on his behalf negotiates with creditors to accept less than owed in exchange for a one lump sum repayment. Debt settlement process might seem very stressful and complicated, but it does not have to be if you know how it works.
Step 1: A loan or credit card debt settlement process starts with a person deciding whether he wants to do everything on his own or to get help with debt settlement process from companies that specialize in this. During this stage a person learns what it takes to settle a debt on his own and evaluates his abilities and chances of getting the desired result.
At the same time, you should look locally or online for companies that offer settlement services just to be sure that you looked at all the options before making a decision. You will need to find an agency that is reputable, clearly states all the conditions of debt settlement through them, including all the fees and charges and expected results, although it should not promise any specific numbers/results.
Step 2: After evaluating the two options, you might decide that turning to professionals will be your best option. Once you are satisfied with all its terms, fees and charges, you will sign an agreement with this agency. However, before signing an agreement or continuing on your own, calculate if and approximately how much you will be able to save.
During this step, you will need to calculate exactly how much you owe. Then, you will need to estimate how much you can potentially save. This would be an estimated amount that your creditors will agree to forgive minus the fees and charges of the agency (if using one) and taxes to be paid on the amount forgiven. An agency should calculate these numbers for you before you sign anything (or decide to go another route).
Step 3: The next step in the personal loan settlement process includes stopping making any payments towards all the current loans. This is done (and usually required by the settlement companies, if you turn to one) to trick your creditors into believing that you are likely will not be able to pay back the debt at all, since they are not yet aware of the fact that you are going through a credit card settlement process.
During this phase, you should be aware that your debt is actually growing due to overdue payments that increase interest and add late payment fees. Instead, you will be depositing these payments into a different account that you will withdraw from to make that one-time payment, if everything goes well.
Step 4: After about three or six months, depending on how late you were with your payments, you or an agency on your behalf will contact all your creditors and try to talk them into reducing your debt under conditions that you will pay back the whole sum at in one payment.
This negotiation step can take a very long time if your creditors are not willing to settle for the amount you are satisfied with, but you should not allow it to go on for several years because you will be risking too much. Your or your representative’s negotiation skills will play a very important role here.
Step 5: Final step in the loan or credit card settlement process is an agreement to the negotiated terms and payment of the debt in one lump sum to the creditors, paying taxes on the forgiven amount as well as paying all the fees/charges to the settlement company, if you used its services.
Before signing the final agreement, you should carefully read the agreement papers, including any tiny text that some people tend to skip to be confident that this is what you want. If you or the agency were not able to come to a desired result, get ready to pay all the late fees, collectors, and larger monthly payments.