Avoid Bankruptcy By Settling Your Debts

Financial service companies or law firms specializing in debt settlement sometimes would lead you to believe that only they have the ability to help you reduce your debt and get you out of that financial hardship.

But that's not entirely correct, because if you take a closer look at the fine print of their agreement you'll notice that although they will be managing your account and will be talking directly with the creditors, they are however absolutely powerless if and when the creditors decide to file a case against you.

Debt settlement companies are having a field day with today's economic environment of rising unemployment rates, soaring interest on unsecured loans and overextended credit. If you find yourself struggling to make payments and unable to reach anyone that can help you at your creditor's customer service number, it is easy to turn to such a firm for assistance.

Debt settlement companies may tell you to stop making payments and begin sending them money – typically less than you were paying so you immediately feel some relief. An agreement will be sent to you asking you to refer collection agencies to them, that you grant them special power of attorney to negotiate directly with your creditors and that you agree to escrow part of the funds that you're sending them for paying off the accounts when a settlement agreement is reached.

Your first and second month's statements will generally be received from your creditor before you receive any type of collection notice. By that time expect to receive either a letter, a call, or both. If you provide the caller with your debt settlement company's contact information, or forward letters to that company, you can avoid any further contact with them.

If the amount to be settled is not that high and you still have some savings or equity on your house left, you might want to listen first to what the collection officer has to say. He would explain that no one at the credit company could do anything about your account until such time you defaulted on your payments and got referred to their company. At that point, they may be able to help.

Many companies can offer to settle for half of your total debt, inclusive of late fees and additional interest, if you are really on a hardship of some kind. This amount will probably be less than the debt settlement company expects to escrow for payment and doesn't even require involving another party, however it will be a limited time offer so you do need some financial resources. If you are still unable to meet that amount, some companies may even decide to bring it down further provided you settle it in a specified amount of time.

In some instances, you may be able to settle your debt for this amount. Other times, you may wish to go with a debt settlement company, which will not save your credit but may help calm your nerves. A third option, if the amount is too high and your conditions dire, is to consider bankruptcy.

Remember however that if a creditor writes off a substantial amount of your debt that you are required by law to report it as income and pay corresponding taxes the following year. This applies whether you do the work yourself, or pay another company to do it for you.

About the author: Howard Martin is a freelance writer and publishes his expertise in reclaim ppi and claim back ppi.

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