There are many options for dealing with your debt and none of these options will likely fit every single scenario. Debt settlement is a debt solution that lets you pay your creditors a percentage of the total balance. When the creditor agrees to this settlement deal and you make payment, the balance is satisfied, you no longer owe any money to such creditor. It sounds easy – pay less than what you owe and call it a day. But, there’s more to it than that.
You can’t afford to pay off your debts.
If your current monthly debt payments are too high for you to pay and you don’t see an end to the financial problem, consider debt settlement. On the other hand, if you’re making your minimum payments just fine and you can actually afford to pay a little extra, then you may want to consider snowballing your debt. That’s when you make an extra lump-sum payment to one of your debts every month until it’s repaid.
You can’t get a debt consolidation loan.
To get a debt consolidation loan large enough to pay off your debt, you typically either need to have good credit or you need to have enough equity in your home to pay off your debts. If you don’t have either of those, then you should consider debt settlement. Debt settlement doesn’t require you to borrow any money on a formal loan, so you don’t have to worry about qualifying for a loan.
You don’t qualify for credit counseling.
Believe it or not, not everyone who calls for credit counseling actually qualifies for the service. That’s because the monthly payments for credit counseling services may not be that much lower than the minimum monthly payments you pay on your debts right now. If you can’t afford to make payments under a credit counseling agency’s debt management plan, then consider debt settlement.
You don’t qualify for Chapter 7 bankruptcy.
A few years ago, the federal bankruptcy laws changed so that debtors who want to file Chapter 7 bankruptcy have to first pass a means test to file. This means test first checks to see if your current monthly income (as defined in chapter 7 of title 11 of the United States Code) is below the median income in your state. So, if it is not, then you may not be able to file Chapter 7 bankruptcy – the bankruptcy that discharges your unsecured debt typically in about four to six months.
Your other option may be Chapter 13 bankruptcy.
Debt settlement may be the ideal solution for someone whose best option may be to file Chapter 13 bankruptcy. Under this type of bankruptcy, you’d repay most of your debts within a three to five year time period. You create a plan that the court may approve for you to repay your debts. The bankruptcy court reviews your income and your expenses and determines how much you could pay toward a Chapter 13 repayment plan every month. A downside is that the bankruptcy filing could stay on your credit report for up to 10 years.
Debt Settlement Requirements
If you decide to go the debt settlement route, then you may have to put aside money every month (or make payments to a debt settlement firm) that can be used to settle your debts. You’ll have to realize that your credit score will likely go down as a result, but you could bring it back up once you’ve completed the debt settlement program. Debt settlement isn’t an instant fix since it takes time to reach a settlement. If you’re ok with these things, then you may be ok to move forward with debt settlement.