Know Your Credit Settlement Options

Also known as debt settlement or arbitration, it is usually the process in which both the debtor and the creditor make a deal to reduce the amount payable in exchange for either immediate payment or a much shorter timescale on the monthly payments.

While it doesn’t look like this on the face of things, a credit settlement is actually very beneficial for both parties. Your creditor may try to make it appear like they are doing you quite a huge favor in reducing the debt. But there are very few philanthropists in the world. The creditor, or their advisors will take an objective look at the situation and see that there are 3 real options available to them.

The creditor could refuse to settle the debt. Which then means the creditor needs to look at court judgments, legal fees and debt collection agencies. The vast majority of the time the costs associated with this kind of action makes it un-worthwhile to do. For example, if we look at a hypothetical situation in which the debtor were to owe $1000 to a creditor, and due to financial difficulty, the debtor offers to pay $700 immediately, as opposed to the entire debt. The creditor will lose out on $300 from the debt. The creditor may think that the idea of a credit settlement causes them to lose out, so they decide to pursue the debtor for the full debt. The cost of a lawyer alone pursuing such a debt would easily be over the $300. Then if you consider court fees, the costs can very easily continue to increase. So we can assume that the creditor is going to pay a minimum of $400 to try and get back the $1000 that the debtor owes. That is assuming that after all of this, the debtor actually has the money to pay the creditor. Even after the court judgments and the lawyers fees, if the debtor doesn't have money to pay the creditor, then the debtor still cannot afford to pay. Declaring bankruptcy would mean that the creditor gets nothing.

While there are some occasions when the creditors will choose to reject a settlement and pursue the debtor for the debt, it will only be after the creditor weighs all their options. The creditors are only going to pursue the debtor if they think they will be financially better off. So a lot of the time, creditors will choose to at least entertain the idea of a credit settlement.

Negotiation. To take the same hypothetical situation as an example, the creditor may decide that $700 is far too low an amount to get back and therefore may come back with a counter-offer of $900 in exchange for immediate payment. Leaving the debtor with the option of either accepting or negotiating further.

Finally, there is the option of simply accepting the debtors offer. Although the debtor should expect a creditor to negotiate, the debtor should make an offer no matter what. The debtor consider it like the act of buying a car. However reasonable an offer you make the salesman, the salesman is likely to haggle a little bit. This is why it is a very good idea to get in touch with a professional who has had experience in this arena. Credit Settlement companies or lawyers have a lot of expertise in negotiating these matters and should be able to get you a good deal.

You may have read this far and thought that by the sounds of things, the debtor should always try a credit settlement whether the debtor is in financial difficulty or not. Or questioned where you would manage to find this $700 if you can’t afford to pay in the first place.

To answer both of these questions, typically the debtor would be able to build up this money by stopping payment of the debt for the time that the he is negotiating his settlement. The payments that you are not making will form at least part of the lump sum that you will eventually be paying over. This will unfortunately have a detrimental effect on your credit rating. Not nearly as bad as the alternative, Bankruptcy, but it will show on your credit score as not keeping up with the payments. This is also part of the reason why you would not be able to simply arrange a credit settlement for every debt you get. Another reason is that your creditors are not stupid. If you are perfectly capable of paying the debt then they are not even going to consider allowing you to settle it for a lower amount.

In summary, creditors are just as afraid of a debtor going bankrupt as the debtor is. If the alternative is that the creditors don’t get anything then, the creditors are likely to negotiate. If you find yourself in a situation such as this, then seeking a professional debt relief service will allow you to see how effective a credit settlement would be for you and how to start proceedings.