13 Warning Signs That You Have a Debt Problem
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If you’re fed up with being in debt, it may be time to settle for less than you owe.
Treading water with debt is exhausting. You struggle to make your minimum payments, but your balances never seem to budge. And if you fall behind and a debt goes to a collection agency, there’s the added stress of constant calls and collector harassment. If you’re stuck in this type of situation, it may be time for a debt settlement program. It’s a solution that could help you to get out of debt faster for a percentage of what you owe.
Debt settlement is a debt relief option that focuses on getting you out of debt for a percentage of what you owe. It’s also commonly called debt negotiation because you negotiate to only pay back a portion of the outstanding balance. In exchange, the creditor or collector discharges whatever is left. As a result, debt settlement is often the fastest, cheapest way to get out of debt without declaring bankruptcy for many consumers.
Debt settlement works differently depending on the status of the debt and who initiates contact to begin the settlement negotiation. But there are four basic ways that debt settlement can work.
Settlement offers usually only come when a debt has been sold to a third-party collection agency or debt buyer. These entities buy debt that credit card companies and service providers write off. They purchase bad accounts for pennies on the dollar of what’s owed. As a result, even recouping a small percentage of the original balance you owed is a financial gain for them. So, they make offers to settle your debt, either by phone or by mail.
If you receive a settlement offer:
With this method, you contact a company first and make a settlement offer. You offer a certain percentage of what you owe and request for the remaining balance to be discharged. You can use this method with debt collectors, medical service providers for unpaid medical bills, or with a credit card company if your account is behind but still with the original creditor.
This is the method most commonly used when someone has a debt that they just want to be free of. Results may vary. You’ll usually have the easiest time negotiating with a debt collector. However, if you have a credit card that’s behind and you know you won’t be able to pay, you may find a creditor that’s willing to settle. Just keep in mind it often takes a higher percentage to get a creditor to settle.
This is the most common type of settlement and often the most likely to get consumers the results they want. It allows you to settle multiple debts without having to negotiate on your own. You contact a debt settlement company to set up a settlement program. Here’s how you work with an accredited company:
A state-licensed attorney will basically go through the same negotiation process that you can do on your own. However, you have the benefit of having a seasoned negotiator working on your behalf. You also have someone that can provide legal advice, which no one but a state-licensed attorney can do. For example, they may assess your situation and advise if you could be better off filing for bankruptcy. They can also represent you if you get sued in civil court over one or more of your debts.
Debt settlement may negatively affect your credit score, but not in all cases. In certain situations, there are ways to negotiate around the seven-year penalty you typically face for settling a debt. In normal circumstances, settling debt will create a negative item in your credit report that sticks around for seven years. When the clock starts depends on the status of the debt at the time of the settlement.
In either case, the account will generally be listed in your credit report as “paid as agreed.” This is considered negative information. However, it will have less of a negative impact than simply leaving a debt charged-off or in collections.
There are tricks like pay for delete and re-aging that could provide a way to potentially avoid the damage. However, these methods are not guaranteed. Even if you negotiate these into your settlement, the negative information may reappear later. So, it’s best to go into a settlement with the assumption that your credit may take a hit.
Although there are plenty of accredited debt settlement companies that want to help you, there are also people out there that will prey on your desperation to get out of debt fast. These companies charge high upfront fees with a promise to settle your debts. Then they disappear with your money and leave you in a lurch.
Here are a few signs that a settlement company is out to scam you:
Credit card debt is the most common type of debt seen in a settlement, but it’s not the only type you can settle. If you have other types of debt that you want to get out of for less than you owe, we have some additional guides that can help you.
Unpaid medical bills can quickly turn into collection accounts. Whether you’re facing collections because of insurance gaps you didn’t know you had or out-of-pocket expenses that your insurance didn’t cover, you need to be proactive if you want to avoid credit damage that medical debt can cause. Learn about new credit reporting rules related to medical debt and what you can do to solve these challenges.
Although it’s not possible to settle or discharge balances on federal student loans without declaring bankruptcy, it may be possible to settle private student loan debt. Some student loan servicers may be willing to let you out of a student loan for less than you owe. However, you need to go into the settlement negotiation with realistic expectations and the right negotiating tactics.
If you owe tens or even hundreds of thousands of dollars to the IRS, it may be possible to settle it. In fact, thanks to the Fresh Start Initiative, it’s now easier for taxpayers to settle with the IRS. This guide will explain how to negotiate a settlement and what you can realistically expect from the IRS.
Article last modified on November 8, 2019. Published by Debt.com, LLC