Many commercials state that debt settlement can be the answer to your financial problems. With the assistance of a debt settlement company, you can pay off your thousands of dollars in mounting debts at a fraction of what you actually owe.
Unfortunately, debt settlement may also have severe consequences for your credit. What debt settlement companies leave out of their commercials is how they settle.
The first step in settling debts is agreeing to terms with a debt settler. After this, individuals pay a monthly fee to the settlement company. The company determines this fee based on the individual's debts.
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The individual continues to pay the settlement company who, in turn, do nothing for several months. When the individual has finally defaulted on his or her payments, the debt settlement company will call the individual's creditors and negotiate a settlement amount.
At the end of the process, the debt negotiation firm keeps a portion of what the consumer pays it and gives the rest to the individual's creditors.
Since the individual is required to default on his or her debts, his or her credit score may take a hit. This means that the individual may have difficultly securing a loan, successfully applying for credit cards, financing an automobile, or buying a home for several years.
In many cases, bankruptcy is an easier, and even cheaper, method for discharging debts than debt settlement. Additionally, bankruptcy gives individuals a clean financial slate, so they can start their financial lives over.
Determining what method of discharging your debts is best for you may require advice from an experienced lawyer who can help you better understand your options.
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