Debt Negotiation: Can You Really Get Out of Debt Paying Less Than You Owe?
If you are struggling to pay off your credit card debt, you may be wondering
if the advertisements for debt settlement companies are real. Can they help
you pay off your debts for “pennies on the dollar?” Will negotiation
help you get out of debt fast? How will it affect your credit rating?
What Is Debt Settlement?
Debt settlement (also called “debt negotiation” and sometimes
mistakenly referred to as “debt consolidation”) simply means that
you negotiate a lump sum to pay off a debt that's too large for you to pay
back otherwise. The ads that say you can “pay off debt for pennies
on the dollar” are a bit misleading. You may be able to settle debts
for anywhere from 10 to 75 cents on the dollar, but 50 – 60 cents is
a more realistic settlement amount.
This approach may work if you have more unsecured debt than you can pay off
in 3-5 years, or if you have fallen significantly behind on your bills. Creditors
know that if you get to the point where you can’t keep up with your
payments, you may decide to declare bankruptcy. They may be willing to let
you pay a smaller amount than risk getting nothing if you file.
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