When to consider debt settlement

If insolvency appears imminent, you need to do something quick. Your last resort would be to declare bankruptcy because this will be a pock mark on your credit report for many years. One of the options you can choose is a debt reduction settlement, in which the total amount you owe is reduced. Time is a key factor in deciding if this is the right path for you.

The amount of time you’ve been in debt is important in determining whether or not a settlement would be beneficial to you. Don’t think you should be losing sleep if you have missed a payment. Your creditor will start to be concerned if you have failed to make or have been late with three consecutive monthly payments. You will probably be getting a lot of phone calls when your debt has accrued for three months, and your creditor might try to get a settlement. He/she knows he/she could make nothing if you declare bankruptcy, and this is why creditors are willing to lessen the amount of debt you owe. A typical settlement could lessen the amount owed anywhere between a third and a half of the original total. Between three and six months of an outstanding balance, however, your phone bill could jump a bit.

After six months, the debt will then be purchased by a collections agency. It is possible the agency could ask for a lesser amount (in some cases, making you have to pay a fourth of the original amount), but your creditor could call in the judicial system to get the payment. Optimally, the time for a successful debt settlement would be between three and six months of having the balance.

You should also consider the time of year if you are trying to get a settlement. The majority of debt settlements will be a lump sum amount, and you will most likely have up to 60 days to pay the amount in full. Do you foresee making any money in the near future? If so, you could use it to make sure you can pay the full amount. Certainly having a full-time job will be most helpful to you, but maybe you’re also expecting a check in the mail after filing your taxes. If any time of the year would be best to get a debt settlement, it would be during the summer. You’re not purchasing gifts for Christmas, and if you are expecting money back after filing taxes, it would most likely come a couple months after the April 15th deadline. Just don’t be trying to go on an expensive vacation because then you will likely not get a debt reduction in the first place!

David Pilley

David Pilley

David Pilley is a May 2010 graduate of the University of North Carolina at Chapel Hill, with a B.A. in communication studies and a creative writing minor. He is a native of Raleigh, North Carolina.

He played clarinet for the Marching Tar Heels in 2005 and 2006. He also volunteered for STV, the student-run television station at UNC-Chapel Hill, in the spring of 2010. He shot video, wrote scripts, and acted for “Off the Cuff,” UNC’s longest running sketch comedy show. He has the rare distinction of having lived in a dorm all four years of his undergraduate college career. He was also on Franklin Street on the night of April 4, 2009. His future plans are to pursue a master’s degree in journalism and to one day work for the media as a sports journalist or broadcaster.

Being one of eight children, David realizes finance is an important topic to everyone, regardless of his/her knowledge of the subject. His interests are in personal finance, budgeting, and savings.

In his spare time, David enjoys watching sports and standup comedy, as well as doing crossword puzzles and writing in the first person. He also thoroughly enjoys trivia and, one day, hopes to participate on the game show Jeopardy!, where he will try to break Ken Jennings’ 74-game win streak.
David Pilley

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