Debt Reduction Settlements

In a debt reduction settlement both the debtor and the creditor agree to settle a debt for less than what is actually owed. This can quickly reduce the consumer's debt since settlements can sometimes be for as little as 20% of the original debt (this is not the average though). 

Debt reduction settlement is becoming a thriving business for many third-party debt negotiators and attorneys. With such a boom in the number of people offering this service, it is important that you choose a competent negotiator that has a lot of experience. Make sure and establish the credentials of your negotiator before retaining their services.

When considering a debt reduction settlement you must take into account certain aspects. These include what type of debt, what amount, how old is the debt, who the creditor is, the debtor's ability to pay the settlement, any assets that are involved, and so on.

Since most debtors are struggling to make do with the money they have, it seems almost insurmountable to raise money to settle old debts. However, it can be done and thankfully, you can settle accounts as you raise the money instead of having to do them all at once. One way to do this is by opening what's called a "mandated account" in which funds are deposited on a regular basis. Then when the amount becomes sufficient enough to negotiate with, the debtor starts the negotiating process with the account that would likely provide the most savings first.

There are certain forms of debt that can not be placed in debt reduction settlement. These include mortgages, auto loans, most secured debts, child support, bounced checks, or legal fines.

Debt reduction settlement will not clear up bad credit. During the process your account will still be reported in whatever status it's currently in. If the debt is current, it will stay that way. However, in most cases the debt is already past due and will continue to be so until a settlement is reached and paid. Once paid most bureaus will show the account as "Settled-in-Full". This means that anyone reviewing your credit record will know that you settled the account for less than the full amount but it still looks better than if the account wasn't paid at all.

For some consumers debt reduction settlement offers the only solution. For other debt management programs and credit counseling may work best. And in some cases, a mixture of both is needed.