Let’s start with a definition: Debt settlement is a service offered by third-party companies (such as Golden Financial Services) with a goal of reducing substantial personal debt by negotiating settlements with creditors or debt collectors. Almost all types of debt can be consolidated: Credit cards (most common), personal loans, auto loans, mortgages, and many others.
However, the industry we here at Golden Financial live in is one filled with posers, imposters, and scammers. Even some legitimate businesses that promise to offer help can also end up causing you more debt while hurting your credit score. The goal is to make arrangements with your creditors to help you make payments and get back on your feet.
There are likely several red flags you have been ignoring in your personal struggles with income and debt. Promises we make to ourselves prevent us from seeking help. You should know though – successful consolidation of debt is a win-win, on both sides. Your creditors finally get paid, even if it isn’t for the full amount, and you get financial freedom back, which greatly improves your quality of life. This all depends on two main factors: 1. The ability of the client (you) to commit to payments and actually make them on schedule, and 2. The debt relief/debt consolidation company’s ability to find you a compromise that facilitates those payments effectively.
Here are details on those red flags waving at you to apply for debt settlement:
How much debt qualifies for debt settlement?
Well any amount, really. But it depends on your personal situation; your ability to generate income, your personal shopping habits, your money management skills, and your plans for the immediate future and retirement. In a general sense, if you have fallen more than one month behind on your basic bills, and you are receiving frequent notifications of changes in your credit score, you are likely a prime candidate for debt consolidation services.
The majority of our clients come to us with anywhere from $10,000-$100,000 in debt. That’s a big range. Typically those struggling with $10k in debt have recently made a large purchase but are suddenly laid off or facing a medical health emergency. Those with debt in the 6-figure range typically have fallen behind on mortgage payments, have been unemployed for lengthy amounts of time, lost a legal battle, or inherited debt by other means such as gambling or compulsive spending, for example.
The bulk of our clientele is either approaching 30 and thinking about repairing their FICO credit score for the purpose of buying a home, or they are over 45 and have been waging war with credit issues for decades.
What percentage should I offer to settle debt?
Unfortunately, this number varies quite a bit as well, based on individual circumstances. As a general rule though, creditors tend to accept anywhere from 30% when the debt-to-income ratio is heavy on the debt side, and 70% when the debt is reasonably small but the account is already delinquent. Just remember: Your creditors are not required to accept a settlement, so be careful in negotiations and understand that there are other factors involved.
The percentage of debt settlement you are able to successfully negotiate is the second step. The first step is utilizing these tools to reduce your debt. If you are past this point, continue reading below.
Is Debt Settlement really worth it?
If you are expecting us to say “Absolutely yes” because it’s a service we offer, hold your horses. Obviously, we believe that debt settlement is a viable option, and we have hundreds of testimonies from happy clients that are living better lives now that they have financial freedom, but debt settlement does come with some strings. As CreditKarma points out, you might avoid bankruptcy, but the cons of debt settlement can include: 1. Your creditors won’t accept a settlement, 2. You could end up with more debt if you miss settlement payments, and 3. Your credit score will take a temporary hit because you didn’t pay your debts in full, on time.
Additionally, we are a business. This means that we do charge a consulting fee for helping settle the debt. What this means is that you should factor in our percentage into your total debt commitment when making a settlement. You will find several pieces of literature published by creditors warning you of this, but if done correctly, the cost of our fees and your total reduced debt is still significantly less of a burden than the total debt amount you started with. We will walk you through our costs, and help you add them to your reduced debt amount after we have negotiated. This gives you the overall big picture with no secrets and no hidden fees. This practice of transparency is what gives us an A+ rating from the Better Business Bureau.
Bottom line: Yes, Debt Settlement is worth it, but only if your circumstances qualify for settlement, and if you find the appropriate, responsible help to facilitate debt relief. We don’t get paid unless we successfully find you a settlement agreement.
How does a debt relief program affect your credit?
Your FICO credit score changes will depend on what type of debt relief or debt consolidation method you choose, and your ability to maintain the payments. Cutting straight to the point in details from NerdWallet: “If you’re not already delinquent on your accounts, you will be once you divert debt payments toward the settlement account. Delinquent accounts and debt charged off by lenders stay on your credit reports for seven years.” A couple of important notes to add to this statement: This doesn’t mean your credit is destroyed for seven years, it means you can continue to repair your credit once the settlement is paid off, and it is certainly possible to have a decent credit score while this record stays on your credit report for that duration. Secondly, delinquent accounts on your report can be cushioned by generating additional flex in your budget. Cushioning this blow with trimming other debts like cellphone data plans, entertainment packages, and vehicle payments will reduce the damage done by diverting payments to the settlement account.
Additionally, using the debt snowball payment method, after you have organized your finances, can include a debt settlement program monthly payment. If you can make the minimums on other bills now that you have a settlement agreement, you can more aggressively pay down the settlement bill before getting to work on your other debts.
How long does it take to settle a debt?
The entire process, including completing payments, typically takes between 6 and 24 months depending on the settlement size and your personal ability to make the payments. After your application with us is qualified and processed, the negotiation process with creditors begins. Your creditors’ willingness to participate in Debt Settlement significantly impacts this time window frame.
Still have burning questions? Get in touch with one of our representatives today and they can walk you through it!
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If you found our blog looking for financial advice or assistance with credit card debt relief or debt consolidation, call Golden Financial Services today at (866)-376-9846 or info@goldenfs.org. You can check out the rest of our blog here, and do your research on our services here. Let’s talk soon!
