Debt settlement in India is simply defined as an agreement made with creditors to accept less than the amount you owe. It means that creditors will stop harassing you for the money if you settle down your amount. For many people, debt settlement may seem like the most viable solution to be debt-free. But little did they know, debt settlement can be risky.
It may adversely affect your credit score, a creditor may not even agree to debt settlement, or may take a long time to accomplish.
How Does Debt Settlement Work?
Debt settlement comes into frame when you have missed your payments or possibly heavy amount of EMIs that is left unpaid.
It is a daunting task to convince creditors to accept debt settlement, until there is a valid reason to believe.
Simply put, Debt settlement companies negotiate with creditors to reduce what you owe, mostly on unsecured loans. The option for debt settlement is limited to some debts. Debt settlement can’t be precured on secured loan like house loan.
People who are struggling to pay debts on your unsecured loan, debt settlement is a reliable way to settle.
Debt settlement in India only works if you won’t pay at all, which means you have no monetary left to repay your debts. Instead, during your debt relief program, you must save money to make payment through debt settlement. Once the settlement company believes the account has enough for a lump-sum offer, it negotiates on your behalf with the creditor to accept a smaller amount.
Debt Settlement Risks
Before settling your debt with creditors, choosing the right debt settlement company in India is necessary. If you don’t select a company that offers official legal prospectuses and is affiliated with a bank for settlement, then the company is a fraud.
However, debt settlement process is not as straightforward as it sounds. Debt settlement is the last resort to resolve your debts.
Here are Risks Associated with Debt Settlement:
Your credit will take a hit:
If you’re that person whose account is delinquent, you will be in default if you divert payments towards the settlement. Debt settlement will adversely affect your credit score as well as your credit reports. If your reports distinct poor credit score, you will find it difficult to apply for a new loan. Banks will reject your loan application and consider you as a defaulter.
Penalties and interest continue to accrue:
If you are opting for debt settlement with your lenders, then you’ll be likely hit by high interest rates. Interest will continue to rise on your outstanding debt.
You have to pay a fee when a debt settles:
The majority of companies charge a huge amount of fees to settle debts with creditors and may even subject to scams and fraud. Depending on your debt balance, you can enroll in a company like Single Debt, where the legal team negotiates with creditors. We do not take cash up front and hence, your money is safe with you. Until you don’t get a settlement letter from creditors, do not pay the amount. Once it’s received, you can pay the amount directly to the creditor. We charge a percentage based on your balance when you enroll with us for the program.
You’ll pay additional fees:
Beside the basic fees paid for the settlement, customers can face other fees, such as a setup and monthly fee to maintain a debt settlement account under the program.
If you Decide to Try Settlement
If you feel that you have no choice but to opt for debt settlement and you think it is the most reliable, it is necessary to locate the best and a wise debt settlement company in India:
- Check with the reviews of the company if They are a trustworthy debt settlement company.
- Stay away from the company that seeks Money in advance without a settlement letter from creditors.
- Make sure fees are structured as a percentage of the debt eliminated rather than of debt balance at enrollment; that gives the company incentive to trim more of your debt.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. City Credit Management LLP is not liable for any decision arising out of the use of this information.