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Debt Settlement Benefits

By: Michael Millington

When debt starts to take over your life, and it looks like there’s nowhere left to turn, there is one potential saving point left to consider: debt settlement. Debt settlement benefits are surprisingly numerous and can mean the difference between the last-ditch solution of bankruptcy and a fresh start without debt hanging over your head.


What Are Some Debt Settlement Benefits?

So, what are some debt settlement benefits? One of the biggest debt settlement benefits is that it allows a debtor to come to better terms with a creditor. Since debt settlement is a negotiation process that takes place between a debt settlement firm and a creditor, it can produce some positive outcomes with at least part of the debt forgiven in exchange for an agreed payment. Creditors can refuse to negotiate, of course—they hold the debt, and have every right to not agree to reduce anything—but some creditors are willing to at least consider partial payment just to recover any amount of the debt in question.


Additionally, though there’s often a negative effect on a debtor’s credit score when using a debt settlement service—many debt settlements will encourage the debtor to no longer pay a creditor directly but rather deposit the payments into an escrow-style account to be given to the creditor after reaching the target amount—getting out of debt has significant positive effect in the long term. Some debt settlement services will encourage debtors to keep just one credit card and use it routinely for small purchases, allowing the debtor to engage in rebuilding credit with routine small payments.


Further benefit comes in faster debt repayment. Most debt settlement firms will set up an agreement that lasts from about two to four years, during which the debtor will make regular payments. It’s important to be as sure as possible that those payments can be made. In this manner, payments may be able to be made at a faster rate than the debtor originally expected. In many cases, the original repayment schedule might have taken much longer, and even a Chapter 13 bankruptcy has a debt repayment period that can go up to five years.


It’s also possible to remove some of the creditor harassment that comes along with this—some forms are addressed by certain creditor harassment laws—by making it clear to the creditor that debt repayment is in progress. Making a creditor aware that debt repayment is happening can alleviate many collection acts, such as frequent phone calls or wage garnishments. Many of these common issues are rendered moot by the new agreement, and as long as the agreement is adhered to, then many of the punitive measures aren’t necessary.


One debt settlement firm recently explained to U.S. News and World Report’s Money beat that the basic strategy behind a debt settlement plan is simple: debtors have one great tool in their arsenal when it comes to debt: bankruptcy. While bankruptcy doesn’t work on all debt, and it can do some substantial damage to a credit rating for years—which is why it’s important to consider all the alternatives to bankruptcy first—it can render many kinds of debt effectively erased. Creditors want the most return as possible, but if too many attempts are made to squeeze blood from a stone, so to speak, the debtor will turn to bankruptcy measures as a means to cancel as much debt as possible. The eternal question of “would we rather have some or none?” comes into play, and thus creditors are prepared in some cases to negotiate.


In the end, debt settlement can have some useful, and non-trivial, benefits. It isn’t a guaranteed fix to debt, but it can be one great tool to bring into play, and a great way to avoid bankruptcy and the problem problems that can come with it.


Written by Steve Anderson