Debt Settlement Programs

WealthHow Staff Oct 7, 2018
One of the best way to easily get out of debt is with the help of a debt settlement program. It is a service provided by debt management companies to people who have fallen under heavy debt.
Debt settlement is also known as debt arbitration or debt negotiation. The process of settling a debt involves negotiation between the debtor and creditor. This process can be initiated by almost any person or organization who finds himself or herself incapable of making a full and final payment of a debt.

Why Debt Settlement?

Let us first try to understand that how settlement or negotiation of debt is logically possible and approved by creditors.
Debtor/Borrower: At times, borrowers or debtors find themselves in a very difficult spot and are not able to make timely payments to their creditors or lenders. In such a situation, they may prefer to settle a debt, which is an excellent way of preventing bankruptcy and clearing off the debt.
Creditors/Lenders: Debt negotiation or settlement is also advantageous for creditors. The creditor just needs to negotiate a revised rate of interest and instalments with the debtor. The creditor suffers from certain losses in the process, but it is better than bankruptcy, where the creditor faces a risk of losing almost all the amount that has been lent.
In most cases, the debt management program is initiated by the debtor. In some cases, creditors are also known to have initiated the process.

How Does It Work?

It is an age-old concept that has been used for a very long period of time. When a consumer applies for a debt management program, he has to fill out a form giving the details of all the debts that he is finding difficult to repay. In some cases, consumers also prefer to hand over the power of attorney. Next, the company appoints a settlement negotiator.
The negotiator bargains with the creditors and reduces the rate of interest and amount of instalments. This is usually done on the basis of pro-rata allotment, and is in proportion with the income of the debtor. The negotiating company charges a certain fee for the provision of this service. This process is known as debt negotiation.

Credit Card Debt Settlement

A credit card debt is considered to be the most dangerous, due to the fact that the service charge and rate of interest that is levied for every bill keeps on running unless and until the user pays the bill. A pending car bill also tends to be very unhealthy for credit rating, and has thus to be repaid as soon as possible.
During the recent recessionary cycle, where the world economy suffered from recourse crunches, many governments across the world introduced national initiatives for settling debt, in order to aid the people who were neck-deep in credit card related debt.

Government Programs for Debt Settlement

The recent recessionary cycle the lasted till the year 2009 saw the introduction of many government initiatives to aid consumers and companies who were suffering from secured and unsecured debt problems.
In addition to these government programs, central banks of many nations too came up with debt consolidation loans, in order to save big companies and corporations form insolvency and bankruptcy. Such help proved to be very effective for banks and financial institutions, which were in the process to file for bankruptcy.
There are many legitimate services that assure to bring down your debt by 50% or even 60%, by charging a certain sum of money. This is however the costly way out of debt. If you are in a number of small-amounted debts, then it is advisable to look for a program that provides a secured or unsecured settlement loan.
The second alternative is to go in for a negotiation. When debt starts piling up, the best way to curb it is to cancel the credit card and stop all unnecessary expenses.