Credit Card Debt Settlement - A Legal Option to Avoid Paying Back Debt

Credit Card Debt Settlement - A Legal Option to Avoid Paying Back Debt

Credit card debt settlement is considered to be a legal option to avoid paying back debt. This method had replaced the traditional method of bankruptcy filing in the recent times after the US economy has been hit by recession. A major chunk of the Americans lost their jobs and they faced immense financial difficulties. They failed to pay back their credit card bill and became defaulter. They started receiving collection calls and finally after getting harassed and frustrated they filed for bankruptcy.

This has led to a steady increase in the rate of bankruptcy filing. The rate of increase was quite alarming and was hampering the financial equilibrium of both the creditors and the economy. Govt. took steps to curb this situation and declared debt relief bailouts for the creditors in form of stimulus money and tax breaks. This encouraged the creditors to accept settlement deals and they found their financial condition getting stabilized. This credit card debt settlement is considered to be a legal option to avoid paying back debt.

But how does this method work? What is the implication of this method from the perspective of the creditors as well as the consumers? Let us explore!

The settlement method makes use of the threat of bankruptcy to force the creditors to agree for settlement deals. The professional negotiator asks the consumer to go delinquent and as soon as the consumer follows the advice, the creditor gets alarmed. The creditor then waits for 3-4 months and sells off the debt to a collection agency at a very poor rate of 20-30 cents on the dollar. The negotiator then offers a deal of 40-50 cents and also threatens of bankruptcy in case the creditor declines the offer. The creditor agrees because of the fact that the deal means 100% ROI for the collection agency and eliminates the debt of the consumer by at least 50%.

There is a clear implication of this method. On one hand when the consumers enjoy debt elimination and avoid the financial troubles which are associated with bankruptcy, on the other hand the creditors get back a part of their liquidity. This helps the creditors to cover up a part of their costs and the remaining cost is covered by the stimulus cash and tax breaks.

There are many debt settlement companies out there and not all of them are legitimate. That's why it's so important for consumers to use debt relief networks. These networks offer free help to determine what the most appropriate debt relief option is for you. They will give you an unbiased opinion and point you in the right direction whether it is debt settlement or another option.

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