Trustpilot Trophy
America's #1 Debt Relief Company
Get a free debt evaluation
1-800-983-6693

There are a lot of questions about debt. The term debt settlement raises even more questions. What is it? How does it work? Is it right for you? In this article, we’ll help you determine whether debt settlement is right for you by covering what debt settlement is and a few alternatives. 

How does debt settlement work?

Debt settlement is a way to resolve your debts by negotiating with creditors to reduce the total amount you owe them. If you can’t afford to pay off your outstanding debts or are struggling to make the payments, then this could be a great option for you. Working with a debt settlement company can make the process easier, faster and ultimately gets you a better deal. Debt settlement companies have more leverage with creditors and will work with you to handle the complexity and paperwork that comes along with negotiating down your debt. 

Is it worth your time?

Debt settlement can be a valuable option to help you get out of debt where you can avoid paying the full amount that you owe creditors. If you are struggling with debt and feel like there is no way out, debt settlement can help put you back on the path to financial freedom while paying a lower amount than you owe. Debt settlement will help you get out of debt quickly as it is one of the fastest debt-relief options available. 

What are different types of debt?

While there are many different debts a person might have, the two most common types are secured and unsecured. The main difference between these two types of debts is the way in which the lender has agreed to receive back their money if the borrower were to default on the loan. 

Secured Debt

Secured loans require that a borrower put up something for repayment in case they default on their loan payments. A common type of collateral used to secure these debts are homes and vehicles because it means if someone defaults then lenders can use what was given for reimbursement rather than having no option at all. 

Unsecured Debt

Unsecured debt is debt not tied to an asset, unlike with home or auto loans. The most common type of unsecured debt is credit card debt. 

Unsecured debt is riskier for lenders because there is no collateral backing the loan; if borrowers default on an unsecured debt, they can’t just seize property to collect what’s owed. This type of lending requires trust in a borrower and their promise that they will repay the money lent. That means banks typically charge higher interest rates on these loans than secured ones. They’re also stricter about who qualifies by demanding high credit scores and low debt-to-income ratios – only those they see as most credible get them.

Debt Settlement: Benefits and Risks

As with any important financial decision, it’s crucial to weigh the benefits of debt settlement against its risks.

The Benefits of Debt Settlement

The primary benefit to debt settlement is that it can reduce the total amount that you owe. A debt settlement company will negotiate with creditors to reduce the total amount owed and then the savings get passed on to you. By reducing your amount of outstanding debt, you also benefit from an affordable monthly payment and a faster pay-off period. Through debt settlement you could become debt free in as little as 24-36 months. All of these result in you paying less to become debt-free faster. 

The Risks of Debt Settlement

As with any debt relief tactic, there are risks to debt settlement. Debt settlement will have an initial hit on your credit score but ultimately should see improvements in the long run as your debts are settled. Debt settlement also is not an instant fix as you will need to accrue enough funds for a settlement, but this strategy is faster than other debt relief tactics. There are other points to consider which any reliable debt settlement service provider should explain. 

Will Debt Settlement Work for Me?

Debt settlement is an excellent idea if you are looking to reduce your overall debt without having to pay the full amount you owe. It can help you avoid the struggle of keeping up with your monthly payments and help you get debt free in 24-36 months. 

Alternatives to Debt Settlement

While debt settlement is a great option for getting out of debt, there are alternative debt relief tactics that can be used. If you’re unsure what to do, a great place to start is by reaching out to a certified Debt Consultant who can help find the right debt relief plan for your situation.

Credit Counseling

Credit counseling can help you make a plan to pay off your outstanding debt. Debt counselors will review your finances and help create a budget that suits your financial situation. 

Debt counselors will not negotiate down the amount you owe. So if you’re looking to reduce the amount of debt you’re required to pay back, credit counseling might not be the best option for you.

Debt Consolidation

Debt consolidation helps simplify your debt situation by consolidating payments to multiple creditors into one monthly payment through a debt consolidation or personal loan. You will then pay off the full amount owed through monthly payments to the loan company.

If you’re looking to pay less than you owe, struggling to make your minimum payments or worry that you’ll have to pay even more over the life of the loan, debt consolidation is not likely to be the best choice for you.

Debt Management Plan

A Debt Management Plan helps give instruction on ways to manage your current debt load. This type of plan can help you avoid becoming too behind on your payments and stop the onset of credit collection calls and letters from starting. 

Debt management plans are not the best choice for people who can’t make their minimum payments or whose monthly payments might increase due to penalties and interest.

Bankruptcy

Bankruptcy is often regarded as a fast fix for getting out of debt, but it can actually end up having a severe long-term impact on your credit score. A bankruptcy will stay on your reports for about 7 to 10 years which can severely impede many things such as securing loans and financing for larger purchases like a home or car. There are two primary types of bankruptcy when it comes to debt relief for individuals. Chapter 7 bankruptcy involves liquidation of all personal assets to cover outstanding debt, while Chapter 13 creates a plan with creditors for repayment over time at lower interest rates than before.

Negotiate with Creditors Yourself

While it is possible to negotiate with creditors yourself, it can be a steep challenge because the process takes a lot of time, effort, and skill. Since debt settlement companies represent multiple clients at once, they have more leverage when it comes to negotiations and can use their experience to help save you money and time. 

CreditAssociates Debt Settlement

Debt settlement through CreditAssociates can be a powerful strategy for resolving your debt while paying less than what you owe. We are dedicated to helping you find the right debt relief solution and have a support system built in to take you step-by-step through your journey towards financial freedom. Our process is easy to explain and you can get started today with a FREE consultation with one of our expert debt consultants. 

Common Debt Settlement Questions

How can I get rid of debt?

A great way to get help if you’re struggling with debt is to contact a debt-relief company. These companies can help walk you through your options and identify a plan that will help put you back on the path towards financial freedom. 

What are debt settlement companies?

A debt settlement company, like CreditAssociates, is a company that negotiates with your creditors to reduce the total amount you owe so you can become debt-free in as little as 24-36 months.

What happens if I don’t pay my creditors?

Late or missed payments to creditors can result in a lower credit score, reduced credit limits, and higher interest rates. In the most extreme cases, legal action might be pursued. If you are not able to keep up with payments to creditors or cannot afford to pay,  debt settlement might be a good option for you.

How does a debt settlement company work?

A debt settlement company works with creditors to reduce the total amount you owe. Experienced debt settlement companies can have you debt free in as little as 24 months.

How much does debt settlement cost?

Reputable debt settlement companies will charge no fees upfront. This means you will pay nothing until your debt is successfully settled. Once your outstanding debt is settled, companies will typically charge a percentage of the total amount of debt that is enrolled. Even after paying the debt settlement company, you will still typically have saved money on your original debt.

What causes credit card debt?

A variety of different things can cause credit card debt. One of the most common causes is that people spend more than they can afford to, and then don’t have enough money left to pay their bills on time or in full each month. Another common reason is lack of budgeting or financial planning.

What if I’m in credit card debt?

If you are in credit card debt and are having trouble making payments, this is a problem you will want to address immediately. Financial experts emphasize that paying off your credit card debt is an important aspect of financial health as interest fees accrue on it over time, adding to your debt, and regular payments can help improve your credit score. A debt relief company can help walk you through your options and identify a plan for getting debt-free. 

What are the benefits of a debt settlement plan?

The main benefit of a debt settlement plan is that it will reduce what you owe. Debt settlement companies will negotiate with creditors on your behalf to help you get debt-free for less than you owe. Debt settlement may also work faster than many other debt-relief options which helps you get debt-free faster, for less.  

What are the drawbacks of debt settlement?

While debt settlement can help get you out of debt faster and for less, the main risk is that you may have an initial hit on your credit score. However, you should see an improvement in your credit score in the long run as your debts are resolved.