Debt Settlement Programs - Is This The Best Option To Avoid Bankruptcy And Eliminate Debt?
Online, July 19, 2010 (Newswire.com) - There has never been more consumers massively in credit card debt than there is today. Not only are Americans coming off one of the worst recessions since the Great Depression but now credit card companies are jacking up their interest rates leaving many consumers unable to pay back their debts. Many of these consumers in the past would have filed bankruptcy but new bankruptcy laws have made it much more difficult to be accepted. With bankruptcy becoming more undesirable than ever, many consumers experiencing a financial hardship have opted for a debt settlement program.
So how does a settlement program work?
When a consumer enters into Debt Settlement Program they must make the independent decision to stop making payments to their creditors. This is a very difficult decision but a necessary one if the consumer wants to settle their debts. Creditors will not engage in debt negotiation unless they believe the consumer is a legitimate candidate for bankruptcy. Going delinquent by not making payments is the best way to convince creditors that they are on the verge of filing bankruptcy.
Instead of making payments to creditors, consumers will pay into a savings account until enough funds are accumulated to begin the debt negotiation process. The average debt settlement deal in 2009 was negotiated for 50% of the balance however results vary case by case. A lot of the success depends on how skillful and established the debt negotiators are which is why it is very important for consumers to know how to locate legitimate debt settlement programs .
So why would creditors agree to cut a consumers debt balance in half?
The simple answer is that id the consumer were to declare bankruptcy they would likely receive little or none of their money back. Creditors of unsecured debt are usually the last in line to collect funds when a debtor files bankruptcy therefore if they believe the debtor is a serious candidate for bankruptcy it is in their best financial interest to make a debt settlement deal.
Will entering a debt settlement program negatively affect my credit score?
Yes. Credit scores will be negatively affected upon entering a settlement program. How far the credit score drops varies case by case however a general rule is that the higher the score the higher it will fall. Consumers who have low to moderate credit scores will not feel as big of an impact as someone with a really high score. Ultimately this is a trade-off the consumer has to make. They must make the decision that they'd rather eliminate 50% of their unsecured debt balances than maintain a high credit score.
It should be noted however that after the debts are settled, the consumer will have a much better debt to income ratio. This is one of the biggest factors in the FICO score and most lenders actually consider it the most important. Consumers with less debt on their balance sheet are much more credit worthy and should have an easier time being granted lines of credit.
So who should enter a debt settlement program?
Debt settlement is an aggressive debt relief option and should only be considered by consumers that are experiencing a legitimate financial hardship and have at least $10k in unsecured debt. It is not intended for individuals simply looking to get bailed out of their unsecured debts.
To locate legitimate debt settlement programs it would be prudent to visit a Free Debt Relief Network first. These networks qualify the companies and make sure they have all the necessary qualifications and track record to help the consumer. Debt relief networks also provide free debt relief advice and will give consumers advice on what option is best whether it is debt settlement, credit counseling, debt consolidation, or bankruptcy.
To locate legitimate debt relief help through a free debt relief network check out the following link:
