If you’re wondering how to settle your debt, it’s best to understand how debt settlement works. In most cases, you set up an escrow or savings account and begin to make payments to that account. When you have enough money saved, the debt settlement company approaches your creditors to settle the debt for less than what you owe. It doesn’t matter whether credit card companies or collection agencies hold your accounts; you can usually reach a settlement. The company offering the settlement service works with the creditors to negotiate a percentage of the existing debt that you will pay off. Once you pay the agreed upon reduced debt, you pay the debt settlement company a percentage of the forgiven debt as the fee. While CESI doesn’t offer a settlement service, if you need debt settlement advice, we’re here to help.
With the current economic crisis, more and more credit card companies are willing to settle existing credit card debts rather than add to their pile of written-off debt. Because the process can damage your credit, it’s important to get good debt settlement advice, so you know if you’re making the right decision. For some, it makes obvious sense — they avoid the stigma and court-mandated controls of bankruptcy while still lowering their debt balances. Only credit card debts can be handled through a settlement service, not student loans, auto financing or mortgages.
There are obvious drawbacks. Credit reports will show evidence of debt settlements, and the associated FICO scores will be lowered as a result. There’s also the possibility of lawsuit whenever debts go unpaid. But few creditors wish to push borrowers toward bankruptcy — and the possibility of governmental protection against all debts, so that usually isn’t an issue. In addition, the type of debt you hold affects the success of negotiations. Tax liens or domestic judgments remain unaffected by attempts at settlement. Student loans, even those not federally subsidized, have been granted special powers by recent legislation to attach bank accounts without possibility of Chapter 7 bankruptcy protection. Also, some individual creditors tend to have an aggressive resistance against negotiations.
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CESI is NOT A LOAN COMPANY