But what actually is a debt settlement?

The concept has US origins, and was introduced in the UK by Debt Connect UK Ltd. It is a new, innovative product also known as debt arbitration which settles clients’ debts for a fraction of the balance. It sounds great, isn’t it? But how is this possible? Using the services of a debt settlement company you will have some kind of debt reduction due to specialists who negotiate with lenders on your behalf. After a period of time you will get full settlements on your debts, ranging between 25% and 65% of the outstanding balance.

You might ask what kind of debt is eligible for this service. Generally speaking, only the unsecured debts can be settled. Or at least, a creditor will agree to settle only these for less than owed, for the simple reason that there are no other guarantees they will receive anything from you. So credit card debts are the typical cases that can be handled with debt settlement, and this is even more widespread because of the current economic crisis. After the crisis creditors are more willing to settle existing debts. This means they reduce the borrower’s overall debts in return for an arrangement that the debtor will make regular payments. In this way, the creditor regains trust that the debtor tries to pay back what he or she can and won’t file for bankruptcy. In the latter case, the creditor risks losing all money owed.

When do you need to choose this option?

Debt settlement is not needed until you manage to pay regularly and you can control your finances, especially because creditors do not negotiate with clients who are current with their payments. Lenders often refuse to talk about settlements if you are not at least four to six months behind. But if you have problems with the previously mentioned things, it is wise for you to choose debt settlement. You might also opt for it if there is a chance the creditor files a lawsuit against you for being late with the payments. It is also a possible danger that lenders sell your debt accounts to collection agencies that will surely harass you in order to recover debts.

Let’s insist a little bit on the solutions this kind of programme provides! Before all, in case of a good agreement you will have to pay back an amount below the usual level and this will be regarded as a full payment. This is possible with the help of an experienced professional who assists you reduce your outstanding balance to a substantial extent. Moreover, debt settlement is more convenient. You have to pay only once in a month to the debt settlement company. The more you pay every month the more rapidly you will be debt-free. A further benefit occurs if you find a debt settlement company that agrees you not to pay any fees for any work done for you until the debt is settled.

But how can you believe that this option works?

Why is it good for the creditor? First of all it’s good because he can often recover more money than with other collection methods. Collection agencies charge very high fees that can reach up to 40% on recovered funds. Bad debt purchasers also have unbearable charges. The third option, namely pushing the debtor into bankruptcy, is also a bad one for the creditor as he usually ends up with not recovering any money. As you can see, creditors will probably accept getting back some of the money owed than recovering nothing.

Let’s move on and see how to choose a debt settlement company. Here are some tips and tricks, use them trustingly!

	First of all, check how much the company charges to you. Be sure it’s a reasonable fee; otherwise you will wake up with even more credits. Always try to compare a debt settlement with other alternative solutions, taking into consideration mainly the services they offer and the costs of these.
	Before signing up, it is important to inform about any kind of service guarantee that the company offers in case of failure in negotiating a settlement. If there is any guarantee such as refunds, or if fees are to be paid only after the successful settlement, you can surely place confidence in the company. A debt settlement company offering this option should be of good-standing which has their customers' best interests in mind.
	Another useful issue you should find out is whether the debt settlement company employs IAPDA-certified debt adjudicators. These certified members understand the principles and laws that characterize the debt settlement industry and can conceive of your financial situation.
	Don’t forget to check if the company makes reports to credit reporting agencies (for example to Credit Professionals LTD, D&B UK, UK Data Ltd, and many others) or not. This is very important, and much depends on it. Let’s take it step by step! It is known that a debt settlement will affect negatively your credit score, although only in the short term. If you choose a good company, however, this will improve. The explanation is simple: as the company reports your monthly payments to the credit reporting agencies, these will gradually raise your score. Otherwise your score remains very low, and that’s not good at all!
	Check out thoroughly the opinions and suggestions of former clients or their complaints and avoid those companies that have cracked reputation!

Are you drowning in debt?

Although the easiest thing to do is to ignore it, its actuality cannot be gainsaid. Is bankruptcy a single solution for you to get out of debt? I hope you know by now that bankruptcy should not be used until all possible options are considered unreal to pursue, including the settlement procedure this article presented. In case you are under a serious encumbrance of many unpaid debts, and anxiously looking for a way out, a convenient solution for you might be a good debt settlement company. This is not so easy to find, as there are both good companies and disreputable ones, so be attentive! Don’t forget that settlement is possible only if you demonstrate you are not being able to make payments otherwise. But when you are late with your payments, or you not manage to pay at all, creditors will rather choose to settle your debts than have you file bankruptcy. And this means you pay part of your balance all at once and the rest of it will be discharged. So finally you can become debt-free!

So if you are looking for a way out of what seems to be an impossible trap, consider to choose a debt settlement company! Don’t hurry, make company assessments, ask many questions, and be cautious when choosing one!