Debt Relief - the Hard Facts

The service known as debt settlement may not be what one thinks it is. Below are the basics of debt settlement that are good to be aware of before enrolling.

Debt settlement is a program for those with financial hardship. One should be struggling financially before enrolling in this service. This program is a happy medium between the extremes of (high) normal creditor payments and bankruptcy.

Unlike other debt help programs, monthly payments do not go directly to creditors. Payments only go towards two places, fees and escrow funds. The escrow funds are used to settle the accounts, typically in a lump sum, with the creditors. As it often takes months or even years for enough funds to accrue in escrow, some creditors do not see any money at all for a long time.

This service does not completely stop creditor calls. Creditors continue to call in attempts to collect funds. Call from collection agencies can often be dramatically reduced but those from creditors typically cannot. If a person is preparing to enter a settlement program they should also prepare to deal with creditor calls. Creditor calls to ones place of work can typically be prevented.

The initial quote given is only an estimate based on typical cases. There are too many factors that affect the outcome of a settlement program to give a precise quote or guarantee. Therefore the initial quote and payoff time may be better or worse than estimated. In the former case, extra funds would be returned to the client in the latter, the number of payments would usually increase. The vast majority of settlement clients save a great deal of money vs. paying their creditors in full plus fees. The settlement option is for those who are struggling so even a moderate savings is much better than none at all.

This program cannot prevent a creditor lawsuit. No service can! Legal reality in America is that anyone can sue anyone else and nothing can stop that. Debt settlement companies can and do, however, attempt to settle the debt out of court. Many companies assist by suggesting lawyers in the clients' area who can help them further for lower rates. As a general rule it is best to keep the program term as short as possible to avoid lawsuits and accrue funds in escrow rapidly.

For those who qualify and have good understanding of the program good outcomes often result. As always "be prepared" is the best motto to follow.

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