A debt settlement program is designed for consumers with serious unsecured debt (credit cards, medical bills, unsecured loans) problems. These programs are for individuals who no longer have the income to pay the minimum monthly payment towards their debt and are possibly considering bankruptcy. This debt relief solution is not to be taken lightly and should be decided upon after speaking with a certified credit counselor. He or she has the knowledge to assist a consumer in discussing the finances, debt and solutions that will best suit the individuals situation.
Debt settlement programs enable a person to negotiate with their creditors in an attempt to agree on a less than full amount that will be accepted as full bringing the account balance to zero. There is no guarantee that a creditor will accept these terms, but in many cases a consumer can pay 50% less than the full amount owed to settle their account. Consumers can negotiate with creditors on their own if desired, however most consumers chose to use a professional debt settlement company to negotiate on their behalf. A consumer will stop paying a collection agency and save this money in a settlement fund. It is estimated to save at least 50% of the debt owed. If and when a creditor agrees to the settlement amount the money in the savings fund is used to pay the lowered debt amount. The account will then be viewed as paid as settled, making the consumer no longer obligated to the creditor.
Through a debt settlement program a consumer can have their debt settled for less than they owe, however the unpaid debt portion can be taxed. This should be discussed with a financial adviser or counselor prior to the settlement process to ensure clarification. This process does impact ones credit due to being marked as paid as settled instead of paid in full. It is seen in a more positive light than bankruptcy in which no debt is paid, but discharged instead. To ensure that a debt settlement program is the right choice a consumer should speak with a certified credit counselor in order to analyze the financial situation and discuss debt relief options, including the bankruptcy alternative of debt settlement.
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