A Consumer Debt Settlement option is one you might need to consider as part of a debt relief solution.

Consumer Debt Settlement Option

A Consumer Debt Settlement option is one you might need to consider as part of a debt relief solution. This debt relief option applies when your financial situation is in dire state, just before considering the alternative of personal bankruptcy. The goal of debt settlement is to reduce and payoff your unsecured debts in a short time frame by negotiating lower payment settlements with your creditors. You should be aware that your credit history will be negatively affected as part of this process. A consumer debt settlement option should not be considered unless you are experiencing a financial hardship. Here is an overview of the consumer debt settlement option and factors you should consider.

What Is Consumer Debt Settlement Option?

A consumer debt settlement option or debt adjustment is the process of resolving delinquent unsecured debt for far less than the amount owed by promising the lender a substantial lump sum as full payment.

While the process of negotiating with creditors can be done directly by the consumer (debtor), this service is normally performed by a third-party company due to the complexity of negotiation with creditors.

The debt settlement company charges the consumer a fee for this service, normally a percentage of the total debt negotiated or total debt reduction.

Debt settlement comes into play only with your unsecured credit like credit cards, medical bills and personal loans.  A creditor is not going to negotiate and accept less than you owe if there’s a belief you could pay the debt originally agreed to.

Consumer Debt Settlement Option Basics

Here are the basic things to know about a Consumer Debt Settlement option:
  • Offered By For-Profit Organizations.
  • Basic Eligibility Requires Consumer Is Undergoing Financial Hardship.
  • Generally The Option Of Last Resort Prior To Declaring Bankruptcy.
  • You Make Monthly Deposits To The Debt Settlement Agency.
  • The Debt Settlement Agency Uses Your Deposits To Negotiate Lump-Sum Payoffs With Your Creditors.
  • You Stop Making Payments To Creditors | Your Credit Score Is Negatively Affected
  • The Process Takes Between 24 To 48 Months | Longer The Process Higher Costs And Risks
  • The Debt Settlement Agency Is Paid A Fee (Percentage) When A Lump-Sum Payoff To A Creditors Occurs.

 

Consumer Debt Settlement Option Risks

Here are a variety of risks that you need to consider before exercising this debt relief option of last resort.

  • Your Credit History Will Be Negatively Affected | You Should Already Be Delinquent On Accounts Before Taking This Option
  • Creditor Penalties And Interest Will Continue To Accrue | Your Debts Will Increase During The Settlement Process
  • There Is No Guarantee Of Success (There Never Really Is Any Guarantee In Negotiations).
  • When A Settlement Is Reached You Are Changed A Percentage Fee By The Third Party Company
  • The Debt Settlement Amount Reduction May Be Taxable Depending Upon Your Tax Status.
  • If You Are Married You Need To Separate The Debt Settlement Process To Avoid Affecting Your Partner

Consumer Debt Settlement Reality

If you’re trying to get out of debt, you have to be willing to treat everything as expendable.

A Consumer Debt Settlement option will help those consumers with a financial hardship, that have little likelihood of repaying their creditors.  This option is one step removed from personal bankruptcy and should not be taken lightly.

If the decision is made to exercise this option, make sure that you select a reputable debt settlement company or legal group to negotiate on your behalf.

The shorter the time the debt settlement process takes (24 months or less), the more likelihood for success and less costly will be your fees.

Conclusion

An overview of the consumer debt settlement option of debt relief is presented. This includes 1) What Is A Consumer Debt Settlement option?; 2) What are the basics?; 3) What Are The Risks?; and 4) What Is The Reality?

Have a comment or question? We welcome your feedback, so just jot it below. And, if you know someone that might benefit from this article, please send it along via your favorite social media channel. For additional information on how to regain control of your financial situation, please Contact Us for a free, no obligation consultation.

Credit Repair | Identity Theft

Revised:  2019-07-31

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