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Debt settlement programs can be an alternative to bankruptcy

On Behalf of | Nov 8, 2021 | Bankruptcy |

It is understandable that there are many people who are in considerable debt and are yet unwilling to file for bankruptcy. While bankruptcy does offer a fresh financial start, the social stigma attached with it can often leave debtors wondering whether filing for bankruptcy would be the right decision or not. Those people should know that there are certain alternatives to bankruptcy, with one of them being a debt settlement program.

Understanding debt settlement programs

Debt settlement programs essentially involve a company that negotiates with the creditors on behalf of the debtor. The objective of the negotiation is to arrive at a lump sum payment that a debtor would need to make to settle a debt. Usually, savings are deposited monthly into an escrow-like account from which the final settlement amount is paid to the creditors.

What to keep in mind when signing up

Debt settlement programs are an effective way of settling some or all debts but there are some points that any one signing up for a program should keep in mind.

  • Debt settlement programs often require a debtor to deposit money into a special savings account for period of up to 36 months. Often, people who are already in debt find that to be a challenge.
  • The creditors have no obligation to sit across the table with the debtor and agree to a debt settlement plan. So, one should be prepared for a futile outcome.
  • Debt settlement programs often ask debtors to stop making payments directly to the creditors, which can impact the debtor’s credit score.

Beware of debt settlement scams

Before signing up for a debt settlement program, a debtor should also be careful not to fall into the trap of a scam. While some companies can make tall claims, such eliminating credit card debt by 30–60 percent, others tend to collect all of their fees before they actually start paying of the creditors. Thus, it is necessary for the debtor to do his or her homework.

Though many people do thorough homework before signing on the dotted line, the burden of overwhelming debt may lead to a debtor missing out on some of the finer details. Therefore, it may be a wise decision on part of a debtor who is looking out for debt settlement programs to speak with a debt settlement negotiations attorney before making the final decision regarding enrolling into a debt settlement program.