Debt settlement deals with unsecured credit only. Your client, yourself or third parties can negotiate the settlement. Debt settlement will reduce harassment from creditors. Debt settlement involves paying 30-70% of the delinquent debt. The creditors require full disclosure of your client’s financial affairs. Based on that disclosure, they creditors may accept or decline the debt settlement offer. If the offer is accepted, the creditors then determine the settlement amount.
Debt Settlement has the following prerequisites:
- Unsecured debts must be three or more months in arrears (settlement is not an option on secured debt such as a car or a house).
- A lump sum amount of cash is required to make a final payment on an agreed amount for settlement. Making installment payment is rare in this circumstances.
Let’s explore the advantages and disadvantages of debt settlement strategy.
Advantages of Debt Settlement:
If your client has one or two credit accounts to settle, you may be able to settle all delinquent debts on their behalf. A settlement will stop collection calls and legal action from creditors. Debt settlement can save 30-70% up front, plus the interest. Debt settlement lowers your overall client indebtedness.
Disadvantages of Debt Settlement:
Debt settlement will not be a gold star on your client’s credit report. Here are some of the disadvantages:
- The settlement amount must be paid in full
- Settlement will impact your client’s credit negatively
Providing your client pays on time its payment obligations, the negative impact is short lived. Your client credit rating will gradually recover.
Who Pays the Fees of the Debt Settlement Companies?
Debt Settlement service is not free. The client pays the fees directly or indirectly. Debt settlement companies charge a percentage of the total debt or a percentage of the debt savings.
Some Debt settlement companies charge an upfront fee, while others deduct their fees from the payments made to creditors.
How to succeed in making a debt settlement?
Settling your client’s debt load does not solve the problems that create the delinquency in the first place. Debt consolidation loans work well for individuals who stop relying on credit to pay for their living expenses, change their spending behaviors and embrace the concept of financial planning.
You can work with these clients to help them gain control over their finances. You can do this by using the ULTIMATE Money Coaching Platform.
The Platform helps you personalize a comprehensive Financial Plan for your client. The Financial Plan maximizes your client’s chances to succeed with their debt consolidation effort. The plan helps your client:
- Define their life goals and priorities
- Find the cash they never know you have
- Implement a spending plan/budget, fund their life goals and costs of living
- Track their actual expenses and measure against estimated expenses to bring further balance to their cash flow
- Implement a debt elimination strategy to deal with the current outstanding debt
- Implement the $5 per day strategy to become debt-free
Commit the cash flow saving to fund your Save-Me-From-Debt and 911 funds
There is more than settling on existing delinquent debt. The Money Coaching Software allows to deliver this life-changing plan – check it out.