Duration Of A Debt Settlement Programme

Entering a debt settlement program is a big relief for many people because they know they’ll eventually come out from under their mountain of debt. However, before entering into a debt settlement arrangement, it’s important to understand that it’s not a one-size-fits-all solution for each consumer.

If you’re wondering how long it takes to pay off debt, Century can help you to set a plan. In general, a debt settlement program takes about 18-48 months, depending on your circumstances. Different factors will change the length of the program for each individual. These variables involve the amount of debt enrolled in the program, the type of debt accounts, who the creditors are, and how much of a monthly payment you can afford.

How Much Debt You Have?

The first factor to consider when calculating how long the debt settlement process will take is how much debt you owe. If you carry high balances, owed to multiple creditors, this will have a direct impact on how long it’ll take you to pay off your debt. Keep in mind, debt settlement doesn’t necessarily erase all of your debt, but what it can do is:

• Help you to resolve debts for less than the total balance of what you owe
• Simplify your monthly payments
• Avoid filing for bankruptcy
• Perhaps most importantly, debt settlement is a great option for resolving debt because it enables you to pay a portion of the debt owed under a structure you can afford.

Why Type of Debt Do You Have?

Consumers looking to reduce the amount of debt they owe, will need to consider the type of debt they’ve accrued before entering a debt settlement agreement. Generally speaking, unsecured debt is far easier to settle than secured debt.

Unsecured debt

Unsecured debt has no collateral backing, so no security is required. If the consumer doesn’t pay back what they owe, the lender has to initiate legal proceedings to obtain money back, or agree to a settlement to recoup some of their losses. Debts that are unsecured include:

• Credit cards
• Personal loan
• Medical bills
• Student loans

Many lenders will charge higher interest rates on credit cards to offset the risks of non-payment. Student loans are trickier because it depends if the loan is a federal or privately held account. Federally-held student loans have an assortment of penalties they can impose if borrowers go into default. These penalties can include: garnishing wages, taking away a driver’s license, and withholding tax returns, to name a few.

Secured debts

Secured debts are what the name implies, the borrower must put up an asset to serve as collateral to qualify. If they default, the lender has the right to take the asset to repay the loan. Types of secured debts include:

• Mortgages
• Car loans
• Certain personal loans

When it comes to debt settlement, secured debts are more complicated to work with because the loan has assets secured against it. This means the creditor is able to recoup the loan by seizing the asset rather than take a settlement. For this reason, debt settlement companies will not include secured debt into a program in most cases.

Who Are Your Creditors?

The majority of unsecured debt creditors will allow you to settle your debt with them because they know they’ll recover at least a portion of what is owed rather than absorb the entire loss. It’s important to keep in mind, not all creditors are open to debt resettlement. Those that do typically prefer a lump sum payment, however, this is usually for a much lower amount than the original debt owed. This is a win-win because the borrower experiences a portion of debt forgiveness and the lender recovers a portion of what is owed.

How Much Can You Pay Per Month?

Struggling to get out of debt is a stressful situation. A debt settlement company can relieve your stress by working with creditors to develop a strategy to pay back the money you owe at an amount that doesn’t keep you struggling to get out of debt.

You’re probably wondering… how long does it take to get out of debt? What it boils down to is how much money you can afford to put aside monthly to pay down debt. The money you put into a designated reserve account (which you control and have full access to) is used to pay off your settled debts once you reach an amount that can be effectively leveraged to negotiate with creditors.

Understand, each creditor is individually negotiated with to obtain a lower lump sum amount. This means, ultimately, the total amount of debt you owe to all lenders will play a significant role in determining how long it’ll take for you to become debt-free.

What Is a Settled Account?

When an account is settled, it means the lender has agreed to accept less than the full balance owed as payment. Settling an account for less than the full balance owed is considered potentially negative because you did not repay the entire debt as agreed under the original contract.

Still, most lenders will view a settled account more favorably than an account that is still past due with an outstanding balance. In some cases, such as when you apply for a mortgage, the lender will require you to either pay off or settle any outstanding debts before you can qualify for the loan.

The Difference Between Debt Settlement and Credit Counseling

Some people confuse debt settlement with credit counseling. A credit counseling service is one that helps you organize your finances, teaches you how to manage debts going forward and may work with creditors on your behalf to assist with debt payment. A reputable credit counselor will not advise you to miss payments in order to negotiate a settlement when you have the financial means to make payments as agreed.

Debt settlement companies, on the other hand, typically negotiate a reduced balance with your lenders, usually resulting in the accounts being reported as settled for less than originally agreed. For that service they also charge a fee, which is often substantial. Accounts reported as settled are scored negatively by all scoring models. Many debt settlement companies also advise you to become delinquent on your accounts so they can negotiate a settlement. But doing so wrecks your credit history, leaving you worse off than when you started.

Settled Accounts Remain on Credit Reports for Seven Years

If there is a history of late payments, the account will be updated to show that it is settled and will remain in your credit report for seven years from the date the account first became delinquent and was never again current. That date is called the original delinquency date.

Although settling an account is considered negative, it won't hurt you as much as not paying at all. If you have a past-due debt and paying the debt in full is not an option, settling the account is typically more beneficial than leaving the balance outstanding.

If the settled debt has no history of late payments—called delinquencies—the account will remain on the credit report for seven years from the date it was reported settled.

If you are considering settling an account that is in good standing, talk to your lender first to see if there are other options that will allow you to continue repaying the debt without damaging your credit history.