Persons that are new to credit reporting find it hard explaining debt settlement. The world of creditors and past due accounts can be confusing and aggravating. Many people do not know the advantages of pursing a mutual negotiation with their creditors. Consumers that learn about credit repair make a big step in obtaining control of their financial life.

Financial Jargon

A quick explanation of several commonly used words will help to understand credit concepts. A debtor is the professional name for a person that owes money to someone else. Creditors are persons that extend credit in the form of credit cards or who the debtor owes payment to. Debt is money that needs to be paid due to services, purchases etc.

Basic Definition

Consumers that have a large amount of money owed use settlements to pay off creditors. A good way of explaining debt settlement is that an agreement is made between the debtor and creditor to accept a less than owed amount as payment in full. The money paid in the negotiation is usually in a one large disbursement.

Negotiable Debts

Not all arrears reported on the credit report can be settled. Creditors will usually accept agreements on strictly unsecured debts. An unsecured debt is one that did not require collateral. Examples of this type are personal loans, medical bills and credit cards.

The debt settlement amount can vary depending on the creditor and original total owed. Many companies will reduce the amount by 15% to 40% or more; there is not a specific standard. Consumers may want to initiate a counter offer to reduce the amount of the settlement.

Advantages

Credit settlement is advantageous to both creditors and debtors. The owed party agrees on a deal because they receive funds, which is better than obtaining nothing from a bankruptcy. Consumers like the lower payment arrangement because the amount is easier to pay and many times the negative account is removed from the credit report.

The Instigator Role

The creditor, debtor or a company on the debtor\’s behalf can initiate a debt settlement. A letter is sent to the company where money is owed that explains the original amount, the offer amount and the terms. Explaining debt settlement entails acknowledgment that usually a collection agency has bought the account from the originator. The initial creditor and account numbers should be on all correspondence. At times, many creditors will make an offer when they believe the debt will not be paid. A person can attempt a counter offer to lower the lump sum payment.

Summary

A good option for people that have a large amount of unsecured money owed is a debt settlement.The bills negotiated are personal loans, credit cards and medical bills. An agreement made between an individual and creditor will be satisfied with a less than full amount. In exchange for this less than original payment, the debt will be satisfied with no more owed. Creditors agree to settle for the reduced amount, instead of receiving nothing from a bankruptcy.

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Category: Finances
Keywords: Debt consolidation, bankruptcy, credit, finance, financial, money, savings, debt, debt settlement