How Debt Consolidation Is Done With A Debt Settlement?

Nowadays, borrowing a debt is easy but being in debt for a long time can be suffocating. To overcome this issue, people usually consider a debt settlement. Debt settlement is also known as credit settlement or debt negotiation. It is a debt consolidation way where you and your creditor both agree that your creditors will accept a reduced payment as full settlement for the debt you owe them. For more information about debt Consolidation in Canada, you may get in touch with the experts of debt consolidation by York Credit.

You should go with NCOs (nonprofit credit counseling organizations) because they are usually very good at debt settlement negotiations. They do not agree to settle debts except where this is the only option for debt consolidation left.

What is the applicable interest rate in a debt settlement?

Once the lenders decide to settle their claims, no fee or interest will be paid off if you can pay up by the expiry date of settlement. The debt is then considered to be paid off fully in legal terms. But ensure to get proof in writing from the creditors so that they cannot turn on you for the rest of the money. Depending on your particular situation, the debt settlement can go low to 20% of the full amount or over 80%.

Benefits

  • Sometimes, you just need to pay very less amount than what you owe from your lender, sometimes very much less (up to 20%).
  • Your credit rating is completely repaired just two years after you have paid off the decided amount of debt. However, you have to deal with a non-profit debt settlement agency for it.
  • You’ll be relaxed as the lenders won’t knock at your door. You’re not going to deal directly with your lenders.
  • You can evade bankruptcy where your credit score destroys for many years and it becomes a public record.

Negative Effects:

  • You must have a lump sum of money available for getting a debt settlement. It is quite hard when there are already financial crises unless you have a wealthy uncle anywhere.
  • Profit debt repayment schemes have a success rate of less than 10% and you have to pay hefty fees for getting their services.
  • In most of the debt settlement cases, the fees are as high as the amount you save.
  • When you deal with a for-profit debt settlement agency, it may take 6 to 7 years for your credit rating to recover.