Everything you Need to Know About Business Debt Settlement
Finance is a crucial aspect for the success of any business. For most business owners, business financing is the most viable source of money necessary to invest in more resources for their operations. Unfortunately, even after investing their soul and heart into their business operations, business owners may find themselves struggling with unmanageable debts that are likely to cause a stop to their hard work.
Business owners facing threatening financial difficulty will do anything to keep their business afloat. The good news is that though you may feel discouraged, there are ways to get back on your feet firmly. You may help keep and ensure the success of your business by taking a few steps in Debt Settlement. It can help take off some of your debt burdens and help kick-start on providing products and goods once again.
What is a debt settlement?
Debt settlement or debt relief helps offload a part of your debt through an agreement with your lender. The lender agrees to forgive a portion of the debt balance for a lump sum one-time payment. Debt settlement can be a great option to help keep your business open, but it’s a risky affair that requires extensive planning and knowledge.
A debt settlement agreement is good news for you because it shows that your creditor has agreed to take less money than the debt you owe them as full payment. It also helps reduce your worries as collectors won’t keep knocking on your door, and you also avoid getting sued because of the debt.
How does debt settlement work?
Debt settlement comes as a result of several late payments or skipping payments altogether. The truth is that creditors are unlikely to take anything less than the amount you owe them if they think you can pay the initially agreed amount. When you cannot pay your creditors, this reflects poorly on your credit score as you cannot meet your debt obligation. At this juncture, debt settlement may be the best play on your hand.
Debt settlement companies hold negotiations with your creditors to get them to reduce the amount you owe. Debt settlement is mostly done on unsecured loans and is not available for some options such as houses and cars that can be foreclosed or repossessed. A debt settlement will only work if it looks like you won’t pay at all. As such, you may stop making payments altogether. Instead, you can place your monthly payments in a savings account. Once the debt settlement company is sure that you have enough money, the negotiations with your creditor begin.
Why would a creditor agree to forgo a part of the balance owed?
There are two reasons why a lender may agree to a debt settlement:
- They are hard-pressed for money
- They fear that you will be unable to pay the entire amount you owe in the long run
Though the option sounds good, it’s important to note that most lenders do not welcome the idea with open arms. However, if you are drowning in debts and creeping towards bankruptcy, your lender may grab whatever they can get from you, thus giving you a chance to rise again.
Can you do it yourself?
After doing your research and ensuring a debt settlement is the best move, you need to decide if you want a professional negotiator to handle it or do it yourself. It’s important to note that your creditor may feel better dealing with you directly and that a professional does not guarantee success.
However, if you can sort through the artists, scams, and rip-offs in the industry, a good negotiator is better equipped to get you an incredible deal. Whether you do it yourself or employ a settlement company to help, the critical point is ensuring that your creditor understands that your financial position is terrible. Once your lender is convinced about this, then they will be more inclined to accept your offer.
Lastly, if you manage to finalize a successful debt settlement with your creditor, make sure that you have this agreement in writing that states the amount you pay and the forgiven balance. This caution shields you from getting into trouble with a collection agency if your lender comes claiming it in the future.
What are the risks of debt settlement?
Debt Settlement is not a free card, and it’s not as easy as it seems. The process has several risks and should only come into play as a last resort.
- Debt Settlement can be damaging to your credit: Your credit score will take a significant hit. Once you make payments into the settlement accounts, it enters your credit reports, and it stays there for seven years.
- The process of reaching an agreement can be long and tedious: Besides the fact that the process can be tirelessly long, there is no guarantee that you will succeed. So you may end up paying extra charges and penalties.
- The process can be costly: Debt settlement can take years before settling. So even after a successful negotiation, you may find that your forgiven debt has accumulated high tax. Additionally, if you choose to employ a debt settlement company’s services, you will have to dig into your pockets to pay fees.
Conclusion
As a business owner, you have a viable option to help you deal with your overwhelming business debts. Before you throw in the towel, ensure that you have considered debt settlement before taking steps that may lead to your business closure.
