Debt settlement is an alternative to bankruptcy

(This guest post was provided by RP, a community writer for Debt Consolidation Care.  She has written various articles on debt consolidation, debt reduction and debt settlement.)

Debt settlement is a process in which you and your creditor agree to reduce the overall debt in exchange of a lump sum amount of money. This lump sum amount that you pay to your creditor is considered as payment in full. Creditors may not agree for a settlement as long as you continue to make minimum monthly payments. However, when you are unable to make payments at all your debts may continue to increase due to the late fees and ongoing interest. Thus, in order to get out of your knee deep debt situation you may go for debt settlement.

When to go for settlement

If you are able to pay off your debt with the help of a debt management program, it will hurt your credit score less than your settlement might do. If you are unable to pay off your debt even with the help of debt management program, you should consider settlement. Your inability to pay off your debt may lead you to opt for bankruptcy; however, you must realize bankruptcy may hurt your credit score much more than settlement might do. Thus, settlement may be a better alternative to bankruptcy.

How to settle your debts

When you go for settlement you may either get help of a settlement company or you may do it yourself. If you owe a small amount of debt, you may negotiate with your creditors all by yourself without taking any professional help. But if you have a lot of debt and you need to settle your debts, going for a settlement company will be a good idea. A settlement company has more experience to settle your debts and provide you with a much better offer by negotiating with your creditors than you would have managed to get on your own.

How to find a good settlement company

You will find an enormous number of settlement companies who may be eager to help you but you must be careful before you choose.  Some settlement companies are not even legitimate.  If you are not conscious of scams while choosing the company, you may also have to face scams, worsening your financial situation instead of improving it.  A good company will review your finances in detail and will provide you with solutions which may help you to become debt free as soon as possible.

What questions to ask your settlement company?

Here are some of the questions you must ask your settlement company before making a decision:

1. What fees do you charge? Find out if the majority of fees that your company extracts is based on performance and results.  The fees of such companies are generally collected in the beginning months of the program and are collected before your settlements are complete.  Be careful not to opt for those companies who base their fees upon a percentage of your debt and do not depend on results.
2. Are you a member of TASC? TASC (The Association of Settlement Companies) is the largest association of trade settlement companies.  The companies who are members of TASC agree to comply with the rules laid down by it.
3. Do you get commission? If you find that your salesperson gets a commission you must reject that company.  Acceptance of commission by your salesperson may mean that he may avoid or ignore some important information.
4. How will you manage my creditors? Find out if your settlement company will stop all collection calls from your creditors and deal with their harassing calls on your behalf. Ask them if you have any chances to get sued by your creditors. If the answer is yes to both of the questions your settlement company is telling you the truth.

When you are in debt, settlement may seem the only way out to get out of all your debts quickly. However, you must be careful enough that along with reducing and paying off your debts, settlement also damages your credit score.