August 14, 2023

Types of Debts Eligible for Settlement

Credit cards and medical bills are ideal for the debt settlement process because if the cardholder files for bankruptcy, the card company or medical facility could get nothing. Federal student loans are another story. It’s extremely difficult, to reach a debt settlement. If you have defaulted, the government allows a collection agency to accept a lump-sum payment under three conditions:

  1. You pay the balance of the loan and interest, but not the collection agency charge;
  2. You pay the principal plus half the unpaid interest; or
  3. You pay 90% of the remaining principal and interest.

Private student loans, usually issued by banks, are a better target for debt settlement than federal student loans.

Who Qualifies for Credit Card Settlement?

Credit card companies usually do not have specific guidelines. However, good candidates are usually those who can no longer afford their minimum monthly payments. Credit card settlement offers debt relief without the stigma or harm of bankruptcy.

What if Creditors Won’t Settle?

Creditors have no legal obligation to negotiate an outstanding balance on credit cards or other loans. But they can often recover more funds through debt settlements than other collection methods like hiring a collections agency or attorney.

Debt Settlement Companies

One way to resolve your credit card debt or other debt is to enlist the help of a debt settlement company. Debt resolution companies often are experienced at negotiating with creditors and may have relationships with major creditors, specifically credit card companies.

The first step in the debt settlement process is for a consumer to reach out to a reputable company that can help. These debt arbitration firms are staffed by credit counselors, people who are accredited in analyzing personal finances. They also have a keen understanding of the current marketplace; including how and why creditors will negotiate a settlement.

Once your finances are detailed, the counselor will check the totality of your debt and then draw up a settlement plan. That plan will be presented to you. It should include details about your monthly payment plan and how the settlement company profits from the transaction.

By resolving your debts, an arbitration company can earn its money in several ways. It should receive fees of a scheduled dollar amount, a percentage of the debt you want settled or an agreed-upon percentage of the amount you save through settlement.

Finding the Right Debt Resolution Company

The Federal Trade Commission (FTC) suggests you look for a number of additional features in a debt resolution company to determine its legitimacy. These features ensure that a company is fair, transparent and professional.

Creditors have no legal obligation to consider any settlement deal, so a debt resolution company cannot honestly ensure an agreement.

A good debt settlement company will:

  • Disclose all program fees and costs before you sign up for a debt resolution program
  • Give you an estimate of how many months or years it will wait before making an offer to each creditor
  • Tell you how much money you must save up before it will begin making offers to your creditors
  • Have easy-to-understand written policies about its debt resolution program
  • Estimate its intended results, but never guarantee a specific settlement amount
  • Send all resolution offers to you for your approval

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