Debt Settlement and Consolidation Program - Why it works

Getting out of a financial crises is not easy, and finding the best solution for your situation can be overwhelming. There are many different debt settlements schemes and consolidation programs available to pay off your debts.

Obviously, there are options for debt relief besides the drastic action of filing bankruptcy. Debt settlement is one of the most practical debt relief methods available. When done correctly, a debt settlement program can reduce your unsecured debt by 50% or more. While it is possible to pursue debt settlement yourself, the process usually begins with enrollment in a debt settlement company. Upon enrollment in a consolidation program, you will save up your disposable income in a savings or “special purpose account”. As the money in your account begins to accumulate, the company you enrolled with will negotiate with one of your creditors at a time to agree to pay off amount that is less than that of your original debt. Once your account has grown to the agreed upon amount, they are paid and your account is considered closed and no further payments will be due. The process then repeats with each of your other creditors until all have been paid. It may seem against intuition that creditors would accept payment that is less than the full amount they are owed, but in reality it makes a great deal of sense. After all, if a creditor turns down a proposed settlement, and the borrower files bankruptcy, his or her creditors often receive none of the debt they had been owed. Obviously, it is in a creditor’s best interest to receive a partial payment rather than nothing at all. A word of caution here: trying to settle your debts yourself can be very difficult. Credit card companies are often reluctant to negotiate directly with the debtor and they may even tell you that they don't do settlements under any circumstances. This is generally a boldface lie, but they would rather continue to try to intimidate you as long as they are dealing with only you. When your account goes to a settlement company, they realize that you have someone on your side and they will no longer be able to intimidate you with threats.

Furthermore, if you opt for a debt settlement program, they will now accept the seriousness of your financial situation and recognize that collecting nothing on the debts you owe is a genuine risk. But one of the greatest incentives for them to settle - at years end, they can write off the amount not collected on your accounts towards their taxes. It's a game where they cannot truly lose money... the worst they can ever do is break even.