Why would your creditor accept a settlement offer?

Debt settlement is a process by which you as a consumer can get rid of heavy debt burden and your creditor can also benefit from the settlement amount instead of writing off the entire amount due from you as bad debt.

Generally, you can go for the settlement of unsecured loans like:

  • Credit cards
  • Personal loans
  • Medical bills
  • Bounced checks
  • Department store cards
  • Students loan

In case of secured loans like car loans or auto loans, your creditor have the option to seize the asset or the property for which the loan is taken and realize the amount of unpaid loan but in case of unsecured loans this is not an option for the creditors. The other options available to your creditors are to go for a law suit or realize a portion of the outstanding amount through the settlement offer.

The creditors generally accept a settlement offer in case of unsecured loans. Though it is true, that a creditor might file a suit against you and win a favorable judgment but it is not an easy alternative for them as they incur cost for running the trial and they need to have a solid case against you to win the suit. Instead it is much easier for them to go in for a settlement offer where they can negotiate the final amount & the method of payment with you. In this way, they can realize as much as 50% or more of the outstanding amount which otherwise might have been written off as bad debt in case the court declare you as bankrupt.

Concept of debt settlement became popular in America during late 80s and early 90s when the spread of economic recession set the consumers into major financial hardship. To get rid of the debt trap, many consumers started taking help from debt settlement companies. Though some expert are of the opinion that debt settlement model has many flaws and better be avoided.

Your credit scoring might get a little hampered when you take the help of debt settlement procedure, but some of the agencies help you with financial modules that can help to re-build your credit ratings over a period of time. Again, paying off the settlement amount is much better option than not paying anything towards your outstanding loan as this will also allow the creditors to retain faith in you when they see your effort to payback as much as you can.

In this current age of economic crisis the creditors can see the advantages in going for a settlement offer. The huge amount written off every year as bad debt, affect the financial situation of these credit institutions and banks. So it is beneficial for the creditors to realize (recover) as much amount as possible in the form of settlement.

You can either take the help of professional agencies dealing with debt settlements or can directly negotiate with your creditors and apply for a settlement, if you are well aware of the procedure and legalities involved. This is one tested method that can help you to get yourself out of the severe catch of debt.

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