How to Clear Your Debt Properly

How does debt settlement “Clear Your Debt?”

Debt settlement, also known as debt arbitration, debt negotiation or credit settlement, is an approach to debt reduction in which the debtor and creditor agree on a reduced balance that will be regarded as payment in full.

Debt settlement is often confused with debt consolidation. In debt consolidation, the consumer makes monthly payments to the debt consolidator, who takes a small fee and passes the rest on to the creditors; this way, creditors continue to receive payments each month. In debt settlement, the consumer makes monthly payments, out of which the debt settlement company takes its fees; the remainder is put into a “trust” or “special purpose” account. The creditors get nothing until they decide to settle. Furthermore, the debt settlement company usually instructs the consumer not to make any payments to creditors. The intended effect is to scare creditors into settling the debt for less than the full amount. Typically, however, creditors simply begin collection procedures, which can include filing suit against the consumer in court. As long as consumers continue to make minimum monthly payments, creditors will not negotiate a reduced balance. However, when payments stop, balances continue to grow because of late fees and ongoing interest you’ll find that your credit card companies and other collectors are substantially more motivated to clear your debt.

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