What is Debt Settlement and how does it work?
Debt Settlement is the legal process of getting your creditors to accept less money than you owe them for your unsecured debts, most commonly credit cards, unsecured loans, and medical bills.
Types of Debt that can be settled:
• Credit Cards
• Medical Bills
• Unsecured Personal Lines of Credit
• Unsecured Loans
• Unsecured Personal Loans
• Collections
• Autos in Repossession
• Unsecured Business Lines of Credit
• Unsecured Business Credit Cards
There is no guarantee on what your debts will be settled for in the negotiation process, but debt settlement can typically settle your debts so that you will only have to pay back 30-50% of your current balances. This will obviously save you sizable amounts of money on your debt principal and interest. It also provides you with the opportunity to pay off your debts faster. Depending on the amount of debt and your current financial situation, your debt can be completely paid off in 12 to 42 months.
Debt Settlement Pros:
• Save thousands of dollars.
• Be debt free in 12 to 42 months.
• You are only required to pay back a percentage of your principal balance. You will not have to repay future interest. (See the chart below for more details.)
• Make one monthly payment.
• Avoid Bankruptcy.
• Keep all of your assets.
• Stop Creditor Harassment.
• Relieve Stress.
• A Chance To Start Over.
Debt Settlement Cons:
• Your credit will be negatively affected during the debt settlement process
• Collection calls.
Below is a table that shows the number of years it takes to pay off a credit card balance based on 19% interest and the cardholder making only the minimum monthly payment of 3% of the outstanding balance. Most national cards require a minimum monthly payment between 2% and 3% of the outstanding balance. (Source: CNN Money)
Number of Years to Pay-Off Credit Card Debt at 19%
Debt: |
Pay Off (Principal & Interest): |
Number of Years at 19% |
$10,000 |
$26,276.59 |
42 years, 9 months |
$15,000 |
$55,370.41 |
48 years, 11 months |
$20,000 |
$74,464.22 |
53 years, 3 months |
$25,000 |
$93,557.98 |
56 years, 7 months |
$30,000 |
$112,651.77 |
59 years, 4 months |
$35,000 |
$131,745.58 |
61 years, 8 months |
$40,000 |
$150,839.39 |
63 years, 6 months |
$45,000 |
$169,933.22 |
65 years, 6 months |
$50,000 |
$189,027.02 |
67 years, 1 month |
$60,000 |
$227,214.61 |
69 years, 10 months |
$70,000 |
$265,402.22 |
72 years, 2 months |
$80,000 |
$303,589.81 |
74 years, 2 months |
$90,000 |
$341,777.43 |
76 years, 0 months |
$100,000 |
$379,965.06 |
77 years, 7 months |
$110,000 |
$418,152.62 |
79 years, 0 months |
$120,000 |
$456,340.27 |
80 years, 4 months |
$130,000 |
$494,527.82 |
81 years, 4 months |
$140,000 |
$532,712.48 |
82 years, 8 months |
$150,000 |
$570,903.04 |
83 years, 8 months |