Credit Settlement - A Reorganization Plan

Credit settlement is also known as debt settlement

, and is a popular approach to eliminating debt. It works by principle balances being negotiated to a smaller amount, and by rolling all payments into one monthly amount.

In using credit settlement as a tool, there are several aspects that are necessary. Consumers stop making monthly payments to credit holders. The lending companies will not negotiate as long as they are still receiving payments. Rather than send in payments, consumers generally use a debt relief company, who places the money in an insured account to await a settlement. Once the payments have stopped, the credit card companies will start to negotiate, and generally will settle for a much lesser amount of principle balance.

Credit settlement has become a popular way to get out of debt. When the bankruptcy laws were changed in 2005, it made it far more difficult to use it as a method to eliminate debt. Debt settlement is an alternative which works in much the same way without the credit rating ramifications associated with bankruptcy. Where declaring Chapter 7 can ruin ratings for ten years, credit settlement works to help the consumer out of debt in twelve to thirty six months depending amount of debt, and that alone means the process of rebuilding credit can happen much sooner.

It is a process which works but is difficult for a consumer to manage on their own, and that's why the popularity of debt resolution or relief companies has risen. With FDIC insured accounts, the relief company handles all of the negotiation and the subsequent accounting and payment to creditors. Because they are also familiar with consumer rights, there is an assurance that there are no infractions against either party. This also works for the creditors, who prefer not to deal directly with consumers. They can throw up any number of road blocks those who try. By delaying negotiation or even paperwork processing, they can make life miserable. They tend to respond more quickly and accurately to professional arbitrators.

Credit settlement holds benefits for both consumer and creditor. The consumer eliminates debt and the creditor recovers some funds that would otherwise be lost if the consumer declared bankruptcy. It is a win win situation for both, and for the consumer it reduces the stigma that bankruptcy holds in society.

As with any debt resolution program, the consumer should seek legal advice beforehand and should check references and credentials for any debt resolution company they want to work with.

by: Vicki Hall

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