Debt Settlement Firms Vs Credit Card Companies – The Debt Settlement Process Explained

debt settlement firm

Debt settlement is the method by which negotiation takes place between the debtor and his / her creditors to pay off a reduced amount as final settlement in return for having the rest of the debt forgiven. Filing for bankruptcy and foreclosure can have long term consequences, so settlement is a legal and effective method of managing debt before it goes out of control.

Debt settlement can be conducted on one’s own or through a settlement company. It is prudent to hire the services of a professional to look into your current financial condition and help negotiate all possibilities so that you can manage the settlement in a less stressful way. Debt settlement can be done through debt counseling or through debt management. The settlement companies charge a fee for undertaking these procedures.

The settlement company holds discussions with the credit card companies explaining the reasoning behind proceeding for settlement and finalizes a settlement amount in agreement with the creditors. The final figure arrived upon with the creditor for settlement would depend upon your current financial status. Negotiation should ideally start with a high figure of 70-80% of debt being waived off, though normally the amount is between 30 to 50 percent of your original debt.

Another difficulty that the debtor has to face is dealing with debt collection agencies. Collection agencies apply every possible means to collect credit card payments that you owe to the creditor based on instructions from the credit card company. The settlement company will normally send a written application to the credit card company requesting them to stop the harassment by the debt collectors.

Credit card settlement process can take about a few months to a few years to be completed depending on your income and settlement amount.

Some credit card companies may ask you to pay a lump sum negotiation amount, whereas some give the flexibility to pay in parts for a period of time. You can also request a convenient payment option as per your financial condition.


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