Is it not possible for you to repay your outstanding debts? In such a situation, you can go for debt reduction. It is a debt relief option wherein you can get rid of your debts by paying less than what you owe to your creditors. However, before you opt for debt settlement/reduction, you should have a clear understanding about this debt relief option. Read on to make yourself aware of the debt reduction myths and truths.Truth – In reality, you cannot settle or reduce each and every debt you owe. You can only settle your unsecured debts such as your credit card bills, utility bills, overdue rent, medical bills, etc. You’ll not be able to settle your secured debts such as your mortgage and car loans.Truth – To settle your debts, you need to enroll in a debt settlement program or negotiate with your creditors to reduce a percent of your outstanding loan balance. A successful negotiation can reduce about 40-60% of your outstanding balance if the creditors understand that you cannot repay your debts in full. However, not always the creditors agree to settle 50% of the outstanding loan balance. They may agree to settle a relatively small percent.Truth – It is not always necessary to get professional help for the purpose of debt reduction. You can very well achieve the same results by negotiating with your creditors and/or collection agencies all by yourself. Moreover, some credit card companies may also refuse to talk to debt settlement firms. By settling your debts on your own, you can also save the amount which you need to pay as fees if you opt for professional debt reduction help.Truth – You should know that it is not compulsory for your creditors to accept your settlement proposal. They may not agree to your proposal if you cannot make them understand that you would have to file a bankruptcy if they don’t agree on a reduced payoff amount. Moreover, the creditors usually don’t accept the first settlement proposal you make. They may take time and you need to be patient while negotiating with your creditors.Truth – Unlike other debt relief options such as consolidation and debt management, debt settlement has a negative effect on your credit report that may reduce your score by several points. When you opt for a debt reduction program, you actually stop paying your creditors for sometime and deposit a monthly amount into your settlement account. So, these late payments have negative effect on your credit report. Moreover, after you settle your debts, the account statuses usually get updated as “Paid as settled” which are not favorable for your credit score.If you have any more doubts regarding debt reduction option to repay your bills, you may take help of forums. You can post your specific query and the experts in the community will answer your queries thus helping you in getting out of debt.About the author: Jason Holmes is a regular writer with debtcc community and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like ‘Credit Score The Quintessential Therapy for a Happy Pocket’, Take Creditors and Collection Agencies to Small Claims Court’ and, My Story- From Depression To a Smile’.
Jason Elsman is a periodic contributor to Left Justified, bringing his business knowledge and background to the publication. With 15 years on Wall Street, Jason offers a unique perspective on the business world as it impacts the political landscape. Jason also has a special fondness for history, and will write on this subject when the urge compels him Find Jason at carl(at)leftjustified.com.View all posts by Jason Elsman →