Debt Settlement Companies

Debt Settlement Companies

For some people, debt settlement companies provide the avenue out of debt. Learn how debt settlement companies work.

Putting Skilled Negotiators on Your Side

No, we're not talking about hostage negotiators. Or lawyers, or even car salesmen. We're talking about negotiators at debt settlement companies. Why do debt settlement companies need such skilled negotiators? Because they have to convince your creditors to agree to letting you pay off all of your debt at only a fraction of what you actually owe. For the sake of easy math, let's say you owe $10,000. So a debt settlement negotiator goes to your creditors and says, "Look--my client wants to settle this account but he only has $4,000 saved up. What can we do?" Then the creditors will balk and try to get as much as they can, then the negotiator bites back, and eventually, they agree on a number. If the creditors won't budge as much as the debt settlement company want them to, they will try to negotiate for more time. They'll say something like, "You won't go lower than $6,000? Fine. We need more time then. We can pay the $4,000 now, but we need five years to come up with the other $2,000." And they'll go back and forth on that, and you might get anywhere from 1-3 years to pay back the remaining $2,000.

But debt settlement companies have an ace in the hole. Creditors know that people who contact debt settlement companies for help only do so if their only other option is non-payment. So your creditors figure getting something is better than getting nothing. Plus it saves them the costs of hiring a collection agency to try to get the money. So debt settlement companies know the creditors will agree to some kind of deal that will benefit you.

However, all is not perfect - even with the best debt settlement companies around. Your creditors have to find some way to punish you for essentially robbing them, so they won't let you open accounts with them in the future. No big deal for most people--they'll get another card. But they also report your participation in a debt management program to the three credit reporting agencies, which will effect your credit in the same way as a late payment. If you don't want this to happen, consider another type of debt management program. You can always find debt settlement services that will work out for you both in the long term and in the short. Just don't settle on the first one that you take a look at or you stand to put yourself in a very bad position. Instead feel your way around the various debt settlement programs until you find the one that is just right.

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