While lending companies and creditors always expect debtors to pay their dues in its full amount, there are some situations when a borrower cannot simply afford to pay his debts. In these pressing situations, a creditor may resort to a debt settlement agreement. This allows borrowers to pay only a part of their debt in exchange for the lenders readiness to cancel the remaining balance they owe. In most cases, debtors only consider this option whenever borrowers are in high risk of declaring bankruptcy or skipping out on their debts.
When is debt settlement necessary?
Creditors agree to negotiate with borrowers who are having a hard time in repaying their debts because they are afraid to lose the entire amount of money that they have agreed to let them borrow temporarily. On the part of debtors, an agreement between them and their lenders will also be a great way to reduce their debts and avoid bankruptcy. In some cases, negotiating with lenders is also a wise move among those who wish to prevent causing further damage to their less than perfect credit history.
In most cases, debt negotiation takes place between debtors and creditors. However, some borrowers also prefer hiring an attorney who can facilitate the entire process. Most creditors who are unwilling to give borrowers a free ride will also ask for a proof of the debtors financial problems before they agree to change the terms of the loan. Borrowers who can prove that their financial situation is serious may also try convincing their creditors that it is better for them to get something rather than nothing at all.
A debt negotiation is necessary if you wish to settle your debts but you do not have enough money to do so. To reduce the amount of your outstanding debts, you may also negotiate your lender to delete the account from your credit report. However, you can only do this if you have enough money to settle a significant amount of the debt. Once you have managed to convince your debtor to do this, you can improve your credit score without worrying about the need to pay your outstanding debts in entirety.
Useful tips for debt settlement
If you are trying to get out of credit card debt, you have to be familiar with how you can resolve your case before your creditor decides to sue you. The first step you need to take is to call your creditor as soon as you were not able to pay your dues. Obviously, no creditor would want to write off debts so they will only negotiate with you if they know that you are sincere to your intentions of repaying your debt. However, it is best to call your creditor as soon as you miss your first payment.
To succeed in your negotiation with your lender, you should also be realistic about your situation. If you are having problems in repaying your debts because of temporary reasons such as a short-term drop in your income, you should tell your credit how your finances have changed. However, if it seems like your situation is not going to change in the near future, you may also consider filing for bankruptcy. No one enjoys declaring bankruptcy but this may be the only option you have left if your assets are not enough to repay your outstanding debts.
Finally, you should also consider the implications of reaching another agreement with your creditor. In some cases, lenders are willing to accept smaller amounts of money than you owe. Before reaching a debt settlement agreement with your creditor, your remaining balance may be considered as a part of your income so you should consult a tax advisor about the tax implications that the new arrangement might have.