Debt Settlement

When you should and shouldn't settle for debt settlement.

There is a lot of information out there regarding debt settlement and in so many cases, it is written by individuals who make their living settling debt. This is great because they can be very knowledgeable, however, their ultimate goal is to get your business and the information they provide can oftentimes be motivated by sales.

Our business is focused on consumer protection and compliance, which is at the heart of all the information we share.

Debt settlement definition.

In simple terms, debt settlement is when a borrower pays a creditor or collection agency for a past-due debt. Many times, this involves an agreement between both parties that reduces the amount owed to ensure that the debt is paid. In some cases, it can also involve the removal of the debt from a credit report. 

Do you need debt settlement?

There can be pros and cons to settling your debt. Read ahead to find out what is right for you. 

When you don’t need it.

While we do not encourage consumers to skip paying their debts, we understand that life happens and there can be instances where lending is necessary and certain debts do not need to be paid in order to achieve lending. This can especially be the case when it comes to a mortgage. Your lender will be able to tell you if debt settlement is necessary to address certain outstanding accounts on your credit report and it typically depends on the severity of the debt and the specific lender’s requirements.

If mistakes have been made on your credit reports that have resulted in a debt that you don’t owe, credit repair could be a better option. This is especially the case in debt that has been the result of identity theft.

Click here to hire a credit repair company inside of Credzu.

When you do need it.

If you need to improve your credit for the future, debt settlement can be extremely beneficial. In terms of improving your credit, items such as collections/charge-offs with balances can really limit you. Think of each of those items as a brick tied to your credit. Anything positive that you do with your credit will be weighed down and if those items are verifiable and accurate, meaning that they are legitimately yours, credit repair will not be a productive solution – the best way to deal with them is through debt settlement.

Debt settlement programs.

Debt settlement programs are a way of resolving debts with creditors. In a typical debt settlement program, you offer to repay your creditor a reduced amount of the original debt balance over time until the entire debt is repaid. The creditor agrees and accepts payment from you based on this plan. It’s different from a consumer proposal or bankruptcy where one of the options is to repay less than the full amount of your debt.

Types of debt settlement.

In our credit repair article, we pointed out that anything you do to improve credit is considered credit repair. In the same way, anything that you do to reduce debt could be considered debt settlement.

1.) Do it yourself

This can be a good option for the person who has one or two accounts that need to be addressed. Keep in mind that “settlement” does not include debt that is current, just debt that has been charged off or in collections.

Pros: This is a cheaper way to go and can be a learning experience.

Cons: Settling debt can take time and energy. A lack and time of energy might prevent you from succeeding at this model. Downloading a debt settlement letter online may not be as effective as you would like as this process is sophisticated and oftentimes better left to an expert with years of experience.

2.) Professional – short-term debt negotiation

Professional short-term debt negotiation is when a company works with creditors and collection agencies to negotiate cheaper settlement offers on your behalf. This model can be useful if you don’t have the time to deal with creditors and collection agencies and/or have multiple items that need to be settled on your reports and you don’t have much experience settling debt.

Pros: Depending on your situation, a company that specializes in debt settlement can save you time and money. Consider this – think of what you’re good at and think of the time and energy that went into you becoming an expert in that specific thing. Banks are experts at collecting debt and that is what they’re good at. For this reason, and depending on your situation, it might make more sense to engage a professional who settles debt day in and day out.

Cons: In most cases, services aren’t free.

Click here to hire a debt settlement company inside of Credzu.

3.) Professional – long-term debt settlement (or debt relief)

This type of company can help negotiate lower interest rates and terms with your creditors based on your ability to pay them back. Once they do that, you’ll make monthly payments to the company and they will pay the creditors for you. 

Pros: This can be a good option if you have larger debt and find it tough and confusing to manage.

Cons: This process can take a long time and there are fees (though the goal is to lower your overall payments). Also, the negotiation process typically involves shutting credit cards down, which can hurt your credit for a while and cause you to lose access to aged credit.

Credzu does not handle transactions for this type of debt settlement company.

4.) Professional – Debt consolidation

Simply put, a debt consolidation company will loan you money to pay off multiple debts and then ask you to pay them back.

Pros: This type of service can be useful if you want to settle your debt, but don’t have the money you need.

Cons: It may seem cheaper in the short term, but depending on the arrangement and the terms of the payback, this can be very costly in the long run.

Credzu does not handle transactions for this type of debt settlement company.

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