Sometimes consumers can become overwhelmed with their debt. There are many different options for dealing with debt, from new repayment plans and consolidation to bankruptcy. One option that some people might consider is debt settlement.
Debt settlement is a process in which you agree to pay the lender less than the total cost of the loan. This can save consumers thousands of dollars and let them get out from under debt that they’re having problems making the payments on. However, there’s a process for debt settlement, and understanding that process is key to achieving an optimal outcome.
Qualifications for Debt Settlement
Before someone can get access to debt settlement, they will need to demonstrate certain conditions. It’s important to note that different lenders will have different standards for qualification, so it’s a good idea to research your lender and find cases similar to your situation before attempting to initiate debt settlement procedures.
In order for debt settlement to be an option you will have to prove that:
- You are making a good faith effort to meet your regular payments
- You have a multiple missed payments, collections efforts, and derogatory remarks on your credit report as a result of your debt.
- You are experiencing some kind of financial hardship
- Your income levels won’t permit you to make your regular payments
- You will not be able to pay off the total value of your debt
- You will be able to pay back a substantial portion of the debt in one lump sum right away
As you can see, these qualifications aren’t easy for everyone to meet That’s part of the reason why the process of settling your debts can be so difficult. Moreover, it’s important to keep in mind that your lenders are businesses. They want to make as much money as possible, so if they think you will be able to repay the full value of the loan they will always prefer that.
The first thing you need to do to initiate a debt settlement process is decide how you want to be represented. You have three basic options for this. Some people choose to hire a company that specializes in representing people in debt settlement negotiations. There are many companies that offer this service to be sure to review the different possible companies very carefully.
Another option for consumers looking to initiate debt settlement is to hire an attorney. There are lots of attorneys that specialize in consumer debt and credit litigation. They will know the proper mechanisms to go about settling your debt and how to approach and negotiate with your creditors.
The final option for representation is to do it yourself. There’s no legal requirement for you to have representation for debt settlement, as it is essentially a business negotiation with your creditors. You won’t get the advantage of professional knowledge or resources, but those resources also cost money that some people may not have.
The next thing you need to do is approach your creditors. Many lenders have a department that handles troubled accounts, and they are a good first point of contact. You’ll have to explain your situation, why you need settlement, and why you think the settlement process can be successful. Your lender will like provide a further point of contact and give you a list of documents that you’ll need to put together to start the settlement process.
The documentation that you’ll likely need will include financial information that shows the items discussed in the qualification section above. Additionally, you’ll need to offer proof that you’ll have the ability to pay the settlement. Most lenders will only accept lump sum payments, but some may be willing to work out a payment plan for the settlement. The specifics depend on your lender and your particular situation. If you’re paying with a lump sum, they’ll also ask for proof that the money you’re paying with would only be available if you were in settlement. A good example of this is a relative offering to pay off debts, but not something like an inheritance, which could be used to make your payments or to pay the full amount of the debt.
Finally, you’ll pay the agreed upon rate to your lender. You should ask for verification that a paid in full notice has been issued by your lender to credit reporting agencies and so that the debt doesn’t come back as a zombie loan, with collection agencies hounding you for loans that you’ve paid.