Debt can be overwhelming, especially when it feels unmanageable. You might owe more than you believe you can ever repay, or your debts might be overdue and in collections. Are you currently feeling buried in debt?

When debt becomes overwhelming, it can affect your financial stability and emotional well-being. The constant stress of unpaid bills and harassing calls from creditors can make you feel helpless. Outstanding debt can accumulate interest and fees, making it even harder to get back on track. In such situations, debt settlement might seem like a lifeline, even though it carries some risks.  

So, how does debt settlement work? Let’s determine if this is the right debt relief option for you and some of the pros and cons of choosing debt settlement. 

What Is Debt Settlement?

Debt settlement, also known as Legal Debt Resolution, is a process where a professional negotiates with creditors to reduce the principal amount of debt, aiming to get clients out of debt as quickly and affordably as possible. Traditional minimum payments primarily cover high interest rates and barely touch the principal, perpetuating a cycle of debt. Debt settlement targets this cycle by focusing on the principal amount, offering a more effective solution.

Debt settlement is not just a plan or program; it is a specialized and aggressive financial strategy that works. By negotiating directly with creditors, the process can help clients achieve debt relief faster than other methods and save more money along the way. Now, how does debt settlement work? 

How Does Debt Settlement Work?

There are two ways to approach debt settlement: doing it yourself or using a debt settlement company.

• DIY Debt Settlement

You can negotiate your debt settlement independently. Contact your creditors to explain your financial situation and seek to lower the amount you owe, adjust your interest rate, or reach another agreement. This process requires time and persistence, but it allows you to maintain direct control. Throughout negotiations, continue making your scheduled payments to avoid falling further behind.

• Using Debt Settlement Companies or Attorneys

Debt settlement companies work on your behalf to negotiate with creditors to reduce the amount owed on unsecured debt, such as credit cards, medical bills, or personal loans. However, debt settlement is not applicable for secured debts like mortgages or auto loans.

To make debt settlement offers appealing to creditors, these companies typically advise you to stop making payments on your debts immediately. Instead, you’ll be asked to open an escrow account and deposit a monthly payment there. Once enough funds are accumulated for a lump-sum offer, the settlement company will facilitate the transaction.

It’s important to note that debt settlement is not a free service. Most companies charge a fee ranging from 15% to 25% of the total debt enrolled in the program. For instance, if you owe $8,000 and the debt settlement company charges a 20% fee, you’ll pay $1,600 once the settlement is complete, in addition to the settled amount paid to your creditor. The company can only collect this fee after successfully settling your debt.

Is Debt Settlement For You?

After going over how debt settlement works, you may be wondering if it’s the right fit for you. If you have any doubts or questions, you can always talk to us! Mediator Law Group is a multi-jurisdictional law firm specializing in helping Americans achieve a debt-free and financially secure life. We focus on Legal Debt Resolution (debt settlement) and defending against Creditor Actions. Our aggressive financial strategy gets you out of debt faster and saves you money. Thousands of Americans have regained financial security with our help. Contact Mediator Law Group today to see how we can assist you in settling your debt.