Debt Settlement
Debt Settlement is a program in which you try to reach an agreement with your creditors to pay a lower amount than what you owe them. Another benefit is that you could negotiate a lower interest rate.
These programs are for those who can keep making large scheduled payments. One of the disadvantages of Debt Settlement is that most of the time (90%), the customer won’t see a reduction in the balance owed.
Most debt settlement programs are offered by for-profit companies. Many will ask that you transfer this amount every month into an escrow-like account to accumulate enough savings to pay off any settlement that is eventually reached, according to the Federal Trade Commission. The FTC adds that these programs often encourage or instruct their clients to stop making any monthly payments to their creditors.
You may have to deposit money in a savings account for a certain period of time, which could be up to three years, so be prepared for that. 36 months or more before all your debts will be settled. Whatever you do, stick to the plan. Don’t drop out if you have trouble making the necessary payments. You’ll set yourself back even further.
Some of the other downsides to Debt Settlement are:
- It is NOT A CASH-FLOW SAVINGS PROGRAM
- You will end up paying 70%-80% of your current balance plus agency fees
- Settlement programs are typically 3.5 to 4.5 years long
- Your credit will be destroyed in the process and you will likely lose your credit cards and line other lines of credit.
- In the event that you are copacetic with making the large payments, losing your credit cards and destroying your credit then settlement programs may be something you need research more.