When Should You Consider a Debt Settlement Program?

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If you are in the USA and you are struggling to pay your debts, then here is good news for you. There are several relief options you can pursue beyond paying it off month by month on your own. However, the challenge then becomes finding the strategy best suited toward your circumstances and needs.

What is a debt settlement Program

Debt settlement — which entails negotiating with creditors in the hopes they’ll agree to accept an amount less than your original balance — is one of these options you’ve probably heard about, but you may be wondering if it’s something you should consider.

Keep reading to learn more about the four conditions ideal candidates for settlement typically meet.

Conditions  of debt settlement Program

 You Have $10,000 or More in Unsecured Debt

Only certain kinds of debt are eligible for settlement: credit card debt, medical bills, some personal loans and some private student loan debt. What do these have in common? They are all unsecured, which means they’re not tied to an asset in the way mortgages and auto loans are.

If you need help with vehicle loans, home loans or federal student loans, you’ll need to try something else. But if you’re struggling with high-interest unsecured debts, then settlement may be able to help you tackle them.

 You’ve Been Struggling to Make Minimum Payments

As we mentioned above, debt settlement entails negotiating with creditors and trying to get them to accept a percentage of the original balance owed. The leverage here is settlement enrollees are already delinquent on payments. When creditors fear getting nothing at all, they’re more likely to offer a settlement.

This means ideal candidates are already unable to keep up with monthly payments. If you have a lot of debt but are still on time with your payments, there’s likely a better fitting strategy. Creditors will typically only negotiate if there’s a record of missed payments.

 You’re Suffering a Hardship That Impacts Your Finances

Some life events are difficult to endure mentally and emotionally as well as financially. People enrolling in debt relief programs are usually suffering from a hardship that makes it difficult to come up with the money needed to address their debts.

Here are a few examples of these hardships cited by Freedom Debt Relief:

  • Divorce
  • Death of a spouse
  • Loss of a job
  • Unexpected medical expenses

Because of hardships like these, people keep falling farther behind; it seems impossible to come up with the extra funds needed to pay down unsecured debts while you’re dealing with other expenses. If this sounds like you, settlement may be an option on the table.

 You’re Trying to Avoid Bankruptcy

Anyone who’s tossed around bankruptcy as the potential solutions to their money woes should explore settlement before doing so. Why? While both strategies can affect your credit score, bankruptcy is generally seen as a true last resort. Those who file for Chapter 7 bankruptcy usually end up needing to liquidate many of their assets — and will bear a negative mark on their credit for 10 years. Chapter 13 bankruptcy stays on credit reports for seven years.

Before throwing your hands up and accepting that bankruptcy is your only way out of major debt, it’s worth at least exploring whether a settlement could help you dig out of debt without having to resort to such drastic measures.

If these four conditions seem to describe your situation, you may want to look into settling your debts through a program. A good next step is talking to a credit counsellor and speaking with a debt relief consultant so you have all the information you need to make an informed decision.

About the Author

Parker Edward is a blogger and content creator who writes about finance, technology and business management.

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