“Debt” is a word which by itself has the power to reduce a person to a wreck. The heart beats faster and a cold hand of dread clutches the heart, the forehead creases with worry and tension as the person remembers the amount of debt outstanding in his name.
In India suicides for outstanding debt are a very common thing especially among the farming community. Be it India or U.S.A or the U.K creditors are one of the worst nightmare of most people. There is a new industry in place that intends to help out such people. “Debt Settlement” is a method in which you try to settle down your debts for a lower amount than that you had originally borrowed.
Usually unsecured debt (i.e. the debt that is not against any property like the credit card bills or mortgage loans etc) is what is covered under this system. It is a win-win situation for both parties involved in the transaction. The creditor is able to get back some part of the money he had loaned out and the debtor is able to clear his debt for a lower amount of money and be free from his creditors.
Debt settlement is not a new concept in the world and has in fact been in place from the time that the system of giving money as loan started. Earlier the work of debt settlement companies was done by the middle men who would charge a heavy fee for their services. Today also the basic concept has remained the same.
There are some companies who are made up of people who specialize in negotiating deals of this nature. The system differs slightly in U.S and U.K. While in the United Kingdom a large number of people also opt for the system of full and final payment, most of the people in U.S opt for the system of debt settlement. In U.S there is also the option of getting the debt settlement done through the lawyers who act on their behalf.
The risk with debt settlement companies is that they may hold up the money from the creditors. So the situation is such that even if the debtors pay their money regularly to the company they are still haunted by their creditors. The companies justify this as a method to force the creditors to settle down for a lower amount. They convince the creditors that there is a chance that they will not get their money back thus leading them to settle down for as much as 50% reduction in the hope that getting at least 50% is better than getting nothing at all. The difference is kept by the companies as their commission.
Sometimes companies charge a monthly fee for their services deducting the amount from their customers’ bank account. Thus most people prefer those companies that charge their fees for their services at the end when the job is done. Even though the side effect of this is that there is a reduction in the credit points or reliability to pay back people can always build it up in the future.