Why Debt Settlement Fails
It’s true that a debt settlement program is one of the best ways to get out from under overwhelming debt. However, it’s also true that up to 75% of people entering a debt settlement program are destined for failure. So if debt settlement is so effective, how can it be so ineffective at the same time? A major factor contributing to the failure rate is unrealistic expectations.
Many people think debt settlement can completely eliminate their debt. This isn’t true. Debt settlement works toward reducing your debt, but realistically you’ll be left with anywhere from one-half to three-quarters of your bills left to pay. In fact, if a debt settlement company promises to eliminate all of your debt or more than sixty percent or so, it would probably be a good idea to talk to another company.
Video: Credit Counseling or Debt Settlement?
Entering into a debt settlement program, you also have to realize that your bills, even though they’re reduced, won’t disappear overnight. Full settlement of your debts generally takes from 12 to 36 months, although it varies from case to case. You’ll have to stick diligently to your program in the long-term in order to successfully see your way through to financial freedom.
Another truth that can trip people up is that debt settlement requires sacrifice. If you have assets that can be liquidated to help defray your debt, you’ll have to do that. Getting your debt under control will likely mean giving up some material possessions—quite possibly some of the possessions that put you into debt in the first place.
You’ll also have to reevaluate your lifestyle. If your debt settlement program states that you must reduce your spending in order to make the payments to defray your debt, you’ll have to do this. A good debt settlement company will structure your program in a way that is realistic given your income, but they will also pare down your budget to eliminate unnecessary costs. Again, these are probably the spending habits that caused you to fall into debt to begin with, so you’ll have to be prepared to let them go.
Yes, it’s possible to be successful with a debt settlement program, but you have to be willing to do the work.
Other Misconceptions About Debt Settlement
While debt settlement can help you pay down your debt, you won’t get out of your financial bind without some damage to your credit. If you’ve had late payments or skipped payments already, the damage is, in fact, already done. What debt settlement will do is get the debt paid off so you can work on rebuilding your damaged credit. Also, debt settlement will also hopefully keep you from having to resort to bankruptcy, which will do far more damage to your credit in the long run.
Entering a debt settlement program won’t necessarily keep creditors and collectors from calling or sending letters. Your creditors have a right to know when they can expect to see their money. When they start to see regular payments coming in, the calls and letters will likely diminish. But, again, you have to do your part.
The Importance of Timing
If you’re in financial trouble, it’s important to seek help before things get so unmanageable and out of control that there’s nothing you can do. If you wait too long, even the best debt settlement program might not be able to prevent you from having to file for bankruptcy.
Once you’ve begun negotiating for a debt settlement with your creditors, it’s important not to wait too long before accepting settlement terms. Creditors want to settle with you—if they aren’t able to and you file for bankruptcy, it’s likely they won’t get anything. But if you hem and haw and don’t agree to a settlement, their more lenient stance might change, and you might find yourself in an even more difficult situation.
Even though statistics show a high failure rate in debt settlement programs, that doesn’t mean you have to be one of those statistics. Focus on a realistic settlement, budgeting your payments, and taking action before it’s too late, and you could be one of those who succeeds on a debt settlement plan.
Video: How to Avoid Credit Card Company Tricks
9 Facts About Debt Settlement
- Most debt settlement companies won’t take you on as a client unless you have at least $10,000 in unsecured debt.
- Debt settlement companies report that it’s easier to get a better settlement deal if you negotiate near the end of the month.
- Debt negotiation is focused on eliminating unsecured debt. Secured debt must be dealt with in a different way, often with debt consolidation.
- In 1997 revolving debt, 95% of which is credit card debt, reached a record high of $943.5 billion. At the end of 2008, the figure stood at $973.5 billion.
- The number of debt settlement companies has increased at a similar rate.
- Some debt settlement companies will work with you to coach and assist you in negotiating your debt yourself, rather than doing it all for you.
- Over 1.2 million Americans file for bankruptcy every year.
- The unpaid balance of your negotiated debt is counted as taxable income.
- Your debt settlement will be noted on your credit report.
Send this page to a friend ...