Debt settlement refers to the agreement that is made by debtors with their creditors to settle less than the amount they owe. Once the agreement is accepted by the creditor, they can no longer harass you for the money. Debt settlement helps you to live a debt-free life, but it has certain risks associated with it. People do get tempted by the benefits debt settlement offers by quickly reducing ongoing debt obligations. However, it is crucial to take into consideration that it can adversely impact your credit score.
So, here is a sneak peek to understand how a debt relief company in India works and the risk associated with it. Keep scrolling through to know the details:
How Debt Settlement Companies in India Work?
Debt settlement, referred to as debt relief, helps you during the time when you’re unable to repay an ongoing loan due to a financial crisis like the loss of a job, medical emergency, etc. Under such uncertain circumstances, instead of letting the loan be declared as an NPA (Non-Performing Asset), you have the option to negotiate with your lender to settle the debt for a lower amount that you can easily repay.
The process of debt settlement in India involves negotiating with the creditor for a single lump sum payment which is lower than the total amount you owe. The lenders usually agree to settle because they recover some amount which is better than nothing. It might seem an easy way to get out of debt, but you need to keep this thing in mind that the lenders do not extend debt settlement options to all borrowers. Instead, they thoroughly consider each borrower’s situation and offer the option for debt settlement when the situation is genuine, and the lender cannot pay back the loan in any other way.
The debt management company help you to handle the negotiation on your behalf. The debt relief company will reach your creditors and will negotiate a better payment plan on your behalf. They help in settling or reducing the overall debt obligation.
Benefits of Debt Settlement
Here are some of the benefits that the borrower gets from the debt relief option:
- The advantage of debt settlement is that your debt owed can go invisible from the creditor’s book. It helps in planning your monthly budget efficiently and allows for a scope of remaining settlement if required.
- If you are trying to get a substantial proportion of your debt settled, then the debt settlement will help to offer you peace of mind.
- With debt settlement, there will be a fall in your monthly payment. It can help in erasing the significant amount of interest and fees that are accrued on the total amount you owe.
Risk of Debt Settlement
Although debt settlement helps you get peace of mind under uncertain times, there are multiple risks associated with it. Here is the list of risks:
- Creditors May Not Negotiate
Some creditors won’t even negotiate with the debt settlement companies at all. There is no guarantee that you will be able to successfully settle all your debts with ease.
- The End Result Could be More Debt
In case you stop paying the debts, you can end up with a huge debt burden in terms of late fees and interest accumulation. Be prepared for tough collection exercises from your creditors. If a company reaches a debt settlement agreement, the amount of debt that’s forgiven may be considered taxable income; thus, you might have to pay off an extra amount in terms of tax.
- If the Entire Debt is Not Settled, You May Have to Pay Fees
While working with the debt settlement company, you do not have to pay fees until and unless the settlement is reached. The fees are collected once you have agreed to a settlement and you are ready to make a one-time payment. However, if the company settles only a portion, you will have to pay a certain amount of fees for the service.
- Negatively Impacts Credit History
When you opt for debt settlement, it is marked as “settled” instead of “closed” on your credit report. This status can adversely impact your credit history by making it difficult for you to obtain loans in the future.
In case you have no choice but to go for debt settlement, you must rely on the best debt relief company like FREED. Here is a list of some of the things that you must consider:
- Check the reviews of the company to know the reliability.
- Stay away from the companies that seek money well in advance without any settlement letter from the creditors.
- Make sure that the fees are structured as a percentage of debt eliminated.
To get your debt settled, you can connect with FREED. It is India’s first debt relief platform that offers a debt-free future.