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Debt Settlement – The Negative Side

June 3, 2010 by · Leave a Comment 

Debt settlement sounds like a dream solution, on the surface. Briefly, it is a situation where a financial company negotiates on your behalf to bring down the amount owed, so that you can pay it off. Anyone would jump at the chance to clear their debt by paying only 50 percent of the total sum owed. But there is a catch as always.

Understand this; the lender is willing to settle only because they want to get what they can from you, rather than run the risk of not getting anything at all. So what interest does the debt settlement company have in getting you the best possible discount? This is where the not-so-obvious payment to the company is involved.
More often than not the best deal is arrived at because the company’s fee is a percentage of the amount saved. For example, let’s say you owe $50,000 to your creditor and the debt collection company negotiates for a 50 percent reduction. That means you save $25,000. If the company’s fee is 25 percent (the usual amount), you end up paying them $6,250. Sometimes they charge a fee, usually 15 to 18 percent, based on the total debt. Referring to our example, that would be a fee of $7,500 to $9,000. For person who does not have a way of settling debts, having to pay $9,000 is a lot of money. In other circumstances, the company will charge a flat rate for the time period it takes you to settle the lump sum.

For $9,000 you can find a very good attorney who can help you sort your problems in a safer way. So before you engage in any type of dealings with a debt settlement firm, seek professional advice. Otherwise you may live to regret it later.

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