Stress Of Debt Settlement

Debt settlement is not for the meek. Even though some debt settlement company might paint a rosy picture of how you can pay pennies on the dollar, they dont paint the picture of what the debtor has to go through the settlement process. They might run through the negatives of going through a debt settlement program such as the credit impact, potential for law suits, creditor calls, and tax ramifications.

These things are just an overview of the negatives of a debt settlement process, but when a debtor speaks with a debt settlement company, the agent most likely focuses on the debtors new lowered payments and how they will be out of debt in 2-4 years rather than 30.

I wanted to paint the picture from what a client going through a debt settlement process, either through a company, or through trying to negotiate their own debt will have to go through.

The immediate benefit of starting a Debt Settlement process might truly be debt relief.

I am talking about the payment made to the creditors. When a debtor starts a debt settlement process, they must stop making payments to all their non secured creditors (secured debt must be paid or else they will lose it).

Rather than pay the creditor, the debtor makes payments into a savings account, either their own, or a savings account set up by the debt settlement company through a third party.

These new payments that do not go to the creditor are probably 60% or less of what the debtor was paying previously. So this results in an instant increase in monthly cash flow.

The next thing that will happen is the first ugly consequence of debt settlement, the credit score starts showing delinquent payments, and the fico score starts dropping. The effect size will vary and should not be a concern, the credit score will be pretty much ruined throughout the entire debt settlement process.

Next is yet another negative impact of debt settlement; the creditors will start calling. This is actually the easy part; the hard part is when the account is sent to collections or the legal department and those guys are known for their harassing techniques.

So far we have had one great benefit, and two negative aspects that debt settlement has to show. The happy effects of more money is now starting to wear off as the credit score who consumers are married to starts to shoot down, and creditors are starting to call threatening law suits and saying that these debt settlement companies are all a scam.

Now the debtor starts worrying and calling the debt settlement companies. However, most debt settlement companies are slow to react and the only tool they have in appeasing a consumers anxiety is by saying that this is part of the process and that they should stay calm.

This is hard for a debtor, because they are comparing the word of a trusted institution against X Debt Settlement. Until this point, their only perceived benefit is that they have more cash every month than before.

But now they cant use their credit cards, the collectors are calling every week with an ever increasing balance due to late fees and an exponential interest rate.

Normally if debt settlement clients survive through this next point, they will encounter their first settlement, and perhaps be able to sustain the stress until the very end of the program, becoming a minority of all debt settlement clients who actually stay on to finish the program.

The law suit. The law suit is the scariest tool collectors and creditors have against any debtors attempting to go through a debt settlement process successfully. Sometimes the debt settlement company will be able to thwart the law suit or get a less favorable settlement of around 70%-90%.

The debtors who choose to plow through a law suit, and even sustained a judgment, can now finally start seeing the sunnier days of a debt settlement program. They will finally start seeing the Debt Consolidation coming in and the collection calls start to dwindle into obscurity.

The last step is for those debt settlement clients who completed the program successfully, to handle the tax obligations for any debt forgiven, should they be solvent. However, this is not an issue if they are insolvent, as they will not be obligated to pay the taxes.

All in all this has been a pretty gloomy picture of the type of stress any debtor will have to go through a debt settlement process, but you have to remember, that paying half they debt you owe in record time has to be hard. Hopefully it will teach them a better lesson than what bankruptcy can offer, due to the quick dismissal of their unsecured obligations. If you are a debt settlement candidate and think you can handle this type of stress, then this is definitely one of the best options to consider.

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