DIY Debt Settlement

Jan 3, 2012 by

I think Debt Management Plans, or DMPs, are most often the best way to repay unsecured debts. But in certain situations, debt settlement may be the best option. For example: If you’ve got one large, long past due debt hanging over your head—say from an uninsured hospital stay—that’s been charged off by the original creditor and sold to a collection agency, settlement may be a good choice to be done with it. Keep in mind though that debt settlement—like all options under which you’ll repay less than the full amount originally due—hits your credit score a lot harder than does a DMP program. Also, you need the cash on hand to settle a debt, if you reach an agreement with the creditor.

What’s Debt Settlement?

Under a debt settlement arrangement, your creditor agrees to accept a lump sum payment of less than your unpaid debt to resolve fully your debt.

→ Your debt to creditor = $4,000

→ Negotiated settlement amount = $1,800

→ You pay creditor $1,800

→ Creditor agrees to make your debt balance $0.

But don’t hire anyone or any company to settle your debts. You can effectively settle debts yourself. Debt settlement company fees are high and generally non-refundable. If a settlement company can persuade one of your creditors to take less than the full balance to resolve a debt, then so can you.

For help check out “Settle Your Debt in 12 Easy Steps“, part of the Money Counselor Simple Guides to Debt, Credit, and Wealth Series.

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