Settling Debts Can Help Avoid Bankruptcy
Debt settlement companies – sometimes specialized financial services or law firms – may make you believe that only they can reduce your debt and help you out of financial hardship.
But that’s not completely true because if you refer to the fine print of their agreement it says that even though they will manage your account and talk directly to the creditors, they are nonetheless powerless in the event that the creditors lodge a formal complaint against you.
With rising joblessness, overextended credit and soaring interest rates on unsecured loans, debt settlement companies are growing in number. If you find yourself in a situation where you are hard-pressed to meet your payment commitments and unable to talk to a customer service representative from your creditors, then it is easy to understand why so many people turn to these firms for assistance.
Debt settlement companies may tell you to stop making payments and begin sending them money – typically less than you were paying so you immediately feel some relief. An agreement will be sent to you asking you to refer collection agencies to them, that you grant them special power of attorney to negotiate directly with your creditors and that you agree to escrow part of the funds that you’re sending them for paying off the accounts when a settlement agreement is reached.
You may receive one or two statements from your creditors before you can receive any type of collection notice. At that time you will receive either a letter, a call, or both. If you provide the caller with your debt settlement company’s contact information, or forward letters to that company, you can avoid any further contact with them.
If you have some savings set aside or equity on your home however and the amount to be settled is not that high, you may want to listen first to what the collection agent may have to offer. First of all, they may explain that no one at the credit company could assist you and there was nothing to be done until accounts were delinquent and referred to their agency. At this point, somehow they may be able to provide you some relief.
Many companies can offer to settle for half of your total debt, inclusive of late fees and additional interest, if you are really on a hardship of some kind. This amount is most probably lesser than what the debt settlement firm expects to escrow for payment and you didn’t even need to involve another party. This would probably be a limited time offer however so you better have some financial resources on hand just in case. If you are still unable to meet that amount, some companies may even decide to bring it down further provided you settle it in a specified amount of time.
In some instances, you may be able to settle your debt for this amount. Others will opt for the assistance of a debt settlement company. This may not save your credit reputation but at least your nerves will be calm. Lastly, you may consider filing for bankruptcy if the debt is too high and you are mired in a terrible financial position.
Keep in mind if your creditor writes off a significant amount of debt, you will be required to report it as income and pay taxes on it the following year. This is applied regardless of whether you did the work yourself or hired the services of another company.
About the author: Robert Butcher is a freelance writer and publishes his expertise in reclaim ppi and claim back ppi.
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