In Debt settlement the company or you yourself negotiate with the creditors
to formulate a settlement plan in which you pay only percentage on the total
debts owed. Such a company employs several strategies to negotiate
with creditors and can provide a reduction of 30%-60% of the total amount owed.

The
term is sometimes misinterpreted as credit counseling. Read credit
counseling and the differences
between credit counseling and debt settlement for the understanding
of these two concepts.

Why the Creditors Negotiate

Looking at debt settlement the question that arises in the mind of a person, willing to become debt free
is, '"why on earth the creditors would negotiate to allow such a huge reduction
in money left to be paid?"' The answer is, however, simpler than you think. Studies have revealed
that nearly 25% to 30% of all bankruptcies filed a year are '"current debt"'.
People borrow money from a single creditor known as debt
consolidation loan to pay other creditors. Initially they are successful
in erasing the debt but later on many of them fail to make their minimum payments
as they are not left with any more credit lines. Bankruptcy
becomes their fate. The creditors know that in case you declare bankruptcy and
are awarded Chapter 7 status,
they are very likely to get nothing on what they lent so they negotiate with
the companies to settle the amount and get back the most of the money lent.
In the near future more and more people will be looking for debt settlement
instead of bankruptcy as the new
bankruptcy law will be enforced in 2005.

How it works

You need to qualify for a debt settlement program before you can start settling
up debts. At first, the settlement services fix a meeting with their consultant
who explores all the information about your personal debt. Don't hesitate in
telling him every bit of the truth as the hidden truths will not help in developing
any workable plan. He will assist you to decide how much money you will need
to put aside besides your monthly expenditure to pay the monthly dues.

Limited Power of Attorney

When the assessment process is made the debt settlement with the creditors
is started. The agency signs a form so that they become legally
allowed for the negotiations with the the creditors for you. This
term is called Limited Attorney Power.

Other Benefits

Besides the main benefit of debt settlement you no longer are harassed by the
creditors as well. The company calls all your creditors to inform them about
your settlement plan. The settlement agency will take all the phone calls from
the creditors now. You, on the other hand, will direct all communication with
the debt settlement company. Legally the creditors can still contact you, but
most of them remain in touch with the debt settlement agency.

When you send money in the settlement account

Once the debt settlement company starts paying off the debts with a reduced payment, they will
arrange for you to send money from your settlement account into creditors account
in order to pay off the debts. The company will keep on paying off the debts
on each account one by one until all the money is given back. With the successful
debt elimination,
you are provided with a written confirmation documenting that your debt has
been paid and the account gets closed. This confirmation must come from your
creditor via your settlement agency.