- Debt settlement is a legal remedy allowing you to pay less than the total amount owed in certain circumstances.
- DIY debt settlement requires you to save for a payoff and negotiate directly with creditors.
- Settling debts yourself is a time for money trade off. You exchange the price of hiring a professional agency for the time required to do it yourself.
Do you want to know how to sew, change the oil, or fix a leaky faucet? In today’s world, easy access to technology allows you to gain virtually any skill because there’s a YouTube video for that.
And yet, with all this access to valuable information, tailors, plumbers, and mechanics have more work than they can handle. Why?
As appealing as the DIY movement is, it takes time to gain expertise in a subject. And because of the learning curve required, it is often more efficient to hire a professional, even though you technically could do it yourself.
Negotiating accounts work the same way. If you want to settle debts on your own, you should spend time acquiring the skills needed to do it effectively. Failing to learn the industry could cost more money than an agency charges for services.
Here are five precarious things you need to know about DIY debt settlement:
1.Even a negotiated payoff can result in owing thousands of dollars: Debt settlement is best suited for those with high balances on unsecured accounts such as credit cards or past-due medical bills. In many cases, you can negotiate discounts ranging from 20 to 50% of the total amount owed, including late fees and interest penalties.
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Assume you owe $5,000 and can negotiate a discount of 30%. The new payment terms will reflect a lower balance due in a lump sum or payments over two or three months. The result would be a single payment of $3,500, two payments of $1,750, or three payments of $1,167. Without cash reserves, you would be unable to meet the new terms, leaving you to pay the entire balance plus interest and penalties.
2.Will negotiating yourself expedite repayment? Most people seek the DIY route to save money.
The speed of creditor repayment directly relates to the amount you save each month. Debt settlement agencies establish a third-party savings account to help you save, provide accountability, and protect those assets from creditors.
The second step is to negotiate a lower payoff. Agencies have years of experience with major creditors and know each company’s parameters. This information helps achieve the lowest possible payoff. Specialists also can extend repayment for up to 12 months, allowing you to settle debt faster and reduce the risk of legal action.
In most cases, lower payoffs are achieved, accounting for more than the fees charged.
3.Where negotiations begin: Debt settlement companies start negotiations from the balance at enrollment, where personal negotiations start with the final balance at the time of charge off.
When you stop making payments on an account, lenders begin charging penalty interest and late fees for about six months before charging off a bill. Creditors will discount from this final balance, usually around 25% of the pre-delinquent balance.
On the other hand, creditors start negotiations off that balance if you enroll the account in debt settlement after missing one payment.
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4.How much do you have to save to settle debts: Debt settlement companies calculate the estimated monthly contribution through proven algorithms and include their fees in the monthly payment recommendations. Once enrolled, you put money into a third-party savings account that you control. The process adds structure and accountability, leading to successful negotiations if followed.
Doing it yourself requires you to establish savings goals before you are able to negotiate with creditors.
5.Your negotiation skills matter: Lenders use algorithms to determine the level of concessions they will accept. Companies work with all major lenders and know what discounts they will likely achieve. Individuals do not have the advantage of this inside information.
Can I settle my own debts?
Yes, it may be possible to resolve your own debts. However, debt collectors specialize in extracting the maximum payment, making your lack of industry expertise a significant disadvantage.
What are the benefits of hiring a debt settlement company?
Debt settlement companies guide you through the process, help you save money for payoffs, and negotiate with creditors on your behalf. Their insider information and understanding of the industry can result in lower payoffs and faster debt elimination.
When can I use debt settlement to eliminate high-interest debts?
To qualify for debt settlement, you must experience a financial hardship that makes it difficult or impossible to repay the total amount owed.