Frequently Asked Debt Settlement Questions

It is not unusual to have debt settlement questions running through your mind when you are considering using this option to curb your financial troubles and execute a debt reduction plan.

These same questions have been asked by people who have gone through the process in the past. Learn from the experience of others to help you make your own settlement process easier.

How does debt settlement work?

Debt settlement is a process wherein an outstanding debt is cancelled in exchange for a lump sum payment from the debtor to the creditor which is less than the full amount of the principal. The debt is cleared, but the debtor then has to live with the negative consequences of a damaged credit report.

Can I do a debt settlement myself?

Yes, you can attempt to negotiate a debt settlement on your own by writing letters to your creditors. This can be a good option if you are in extremely tight financial circumstances. Some people going it alone also feel they have more personal control over the process and results.

Can I settle all types of loan balances with a debt settlement agreement?

No. Certain kinds of debt, such as student loans and government debts, cannot be settled for less than the full amount. Debts that can be settled using this process include medical bills, credit card debts and most other forms of unsecured debt (debts which have no collateral).

Should I use a debt settlement company?

Apart from the option of attempting to settle the debt yourself, you may be considering hiring a service to do it for you. Here are a few of the benefits of hiring a debt settlement company:

• They often pull enough weight in the industry to settle your debt for a lower amount than you could on your own.
• They can help you work out a payment plan over a period of time.
• The process tends to be quicker than when you try to settle on your own.
• Some creditors won’t even give you the option to settle on your own, in which case a settlement company is your only option.

There are also downsides to using a debt settlement company:

• They charge fees for service, so some of your savings on the settlement may be cancelled out.
• For a long-term settlement plan, the creditor may decide to sue before you can assemble enough funds to settle.

Will debt settlement hurt my credit score?

In the majority of circumstances, a debt settlement will be reported to the major credit tracking bureaus and your credit score will take a dive as a consequence.

Can I get sued by a creditor attempting to collect my debt?

The short answer is yes. If you have defaulted on a contractual agreement with a creditor, they can take you to court to seek remuneration, even if you are currently paying a debt settlement company to work the issues out for you. If you are in default, you really have very little recourse other than to pay the money back. If you aren’t in a position to do this, it means the creditor could potentially win the right to garnish your wages to reclaim the debt.

This information should help put your worries about common debt settlement questions to rest, helping you to get started on your journey of financial recovery.