Debt Settlement 101: 6 Things to Remember


When an overdue balance is paid off one time with a payment that is lower than what is due, the balance or debt is settled.

Let’s say you owe $50,000 in credit card debt; someone on your behalf may approach the credit card company and negotiate a debt settlement amount of $20,000. If the company accepts, that means the remaining $30,000 is forgiven.

6 Things To Remember During Debt Settlement

debt settlement

1# Why would a company decide to settle?

A company may decide to settle due to several reasons. The simplest one is that it is better to get paid a certain percentage of what you owe than nothing at all.

The idea of settling your balance is not unique, and there are not many studies that were made to prove its success.

It is an alternative that a company has for people who are severely behind on payments or maybe close to going bankrupt.

2# Any disadvantages of settling debt?

So let’s say you have decided to settle your overdue balance, aside from knowing what paying your debt can do for you, you have to weigh out your options by getting to know the disadvantages that it can bring.

3# Payment options

When you undergo settlement, you may be asked to have a significant amount in one go; this is the beauty of settling your debt, it looks good on your records compared to paying every month, which may take years before it gets paid for.

When you pay every month, it is an additional worry that you have to think about, especially if you are having financial troubles.

Although when you spend one time, you might suddenly face a need that you would need funds for. So knowing how to pay off your balance is one thing to think about when you want to settle your debt.

4# Are you a risk?

When you settle your debt with a credit card account, there is a chance that the company will close out your account.

You already have a record that you had difficulty paying off your balance, so that is a red flag already for credit card companies.

5# Your credit score is affected.

When you decide to settle your debt, your credit score will undoubtedly be affected. It makes things a bit harder when you need to borrow at affordable interest rates or to get additional credit in the future.

6# DIY or go with a debt settlement company?

Aside from going with a debt settlement company, there are other avenues, such as doing it yourself. But can you do it? The company primarily needs to deal with you, as you are the company’s customer.

What matters most is, the company that you may have an overdue balance with will need to see for themselves that you are unable to pay. Once the company sees you are having difficulties financially, they’ll go with what you can offer.

One thing that you need to remember as well is to check what your transactions have been when you used your credit card. This process is one factor that credit card companies look at when you ask for a settlement amount for your balance.

They will most likely decline you if you have been charging unnecessary items or service on your card, instead of ones that you need.

Settling debts is one thing that any average adult may encounter at one point in their lives. Seeking the help of professional negotiators does not mean that you are not prepared to do it yourself.

It only means that you value your time and money more because you prefer to have it done professionally rather than commit a few mistakes on your own.

Author: Cathy Carter