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What is debt settlement?

What is debt settlement?

Are you just starting on your path to financial freedom? Taking the first step to pay off your debt can be overwhelming. You either feel like you’re out of options, or there are too many to choose from. We’re here to help.

If you’ve gotten behind on your payments or are just trying to keep up with minimums, there are a few options for getting your financial health back on track. And one of them is debt settlement.

What is debt settlement?

First things first: Debt settlement is when you come to an agreement with your creditor to pay less than what you owe.

It’s also a type of debt restructuring. It’s easy to confuse these concepts, so you’re not alone. To put it simply, debt restructuring is the all-encompassing term for whenever a deal is negotiated with a creditor.

How does debt settlement work?

To settle your debt, you need to reach out to creditors to negotiate a deal. You can work with them directly to restructure your debt or partner with a debt settlement company that will speak on your behalf.

If you’re feeling overwhelmed, partnering with a debt settlement company is the first step toward debt freedom. They’ll often provide a free counseling call to see which options are right for you. If debt settlement is the way to go, they’ll walk with you on the path to financial freedom.

Why is it better to work through a debt settlement company? Here are just a few of the benefits: 

  1. Lean on their expertise: Creditors are intimidating, and negotiating with them is a challenge. Debt settlement partners are experienced negotiators. They know what points to make and which buttons to push to get you the best deals.
  2. Save time: Your time is valuable. Partnering with a debt settlement company means you don’t have to track down your individual creditors and spend time working with each one.
  3. Get peace-of-mind: Know that you’re getting the best deal possible and that you’re on your way to freeing yourself from the weight of debt.

When you work with a debt settlement company, the responsibility is off your shoulders. You’ll work with experts who know what arguments to make and what to ask to get you the most savings. 

There are a few catches that come with it: 

What if I can’t afford the payment?

You’re not alone. Six to 12-month payments are common, but if you need more time to repay, LendStreet can help. When you work with LendStreet, we’ll offer you a new loan to cover your debts in full. 

Now, you have one lower monthly payment that never changes, and you have an end date in sight.

What’s the difference between LendStreet and a debt settlement company?

While LendStreet isn’t a debt settlement company, we work with them to give you the best chance at debt freedom.

Debt settlement companies will work between you and creditors to agree on how much of your current debt you’ll need to pay. Once you settle, LendStreet can provide a new loan to pay off that debt. 

Now, you’ll have ended your relationship with your creditors and have a new, more manageable loan with LendStreet.

What are the benefits of debt settlement and working with LendStreet?

When you partner with LendStreet to settle your debt, you open yourself up to many advantages.* Here are just some of the benefits of debt settlement: 

How does a credit card consolidation loan compare?

Now that you’ve learned about debt settlement, what about those other choices? Credit card consolidation also seeks to help those who have fallen on difficult financial times. 

A credit card consolidation loan helps if you have continued making monthly payments but need help paying off your debt. You can take out a credit consolidation loan at a lower interest rate and use it to pay off your high-interest credit.

However, there are a few drawbacks: 

Unlike debt settlement, you still have to pay all that you owe to your creditors with a credit card consolidation loan.

What is credit counseling, and how does it work?

Credit counseling is offered by debt management platforms (DMPs). They assess your financial situation and provide several services to help you pay off your debt. The service they offer that’s most similar to debt settlement is a debt management plan. 

A debt management plan consolidates your debt into one monthly payment, like a debt settlement plan. Although a counselor will also attempt to lower your interest rates with your creditors, you’re still required to pay the full loan amount.

What about bankruptcy?

Bankruptcy is another option for debt relief. However, it can have longer-lasting penalties than other options, like debt settlement.

There are two types of bankruptcy for individuals: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy discharges most of your debts, but there are some exceptions. Here are some things to think about when considering Chapter 7 bankruptcy: 

Chapter 13 Bankruptcy helps you restructure your debt based on your income and may eliminate what’s left at the end of the term. However, as with the case of any bankruptcy, there are some severe drawbacks.

We’ve broken down your options for easy comparison across debt consolidation.

LendStreet

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Debt Settlement

Credit Consolidation Loan Credit Counseling Chapter 13 Bankruptcy Credit Card Minimums
What Is It? Work with a partner to restructure your credit terms & get a loan with LendStreet to pay off the debt Open a new loan to pay off your existing credit card debt Work with an agency to consolidate your payments and possibly restructure credit terms Work with an attorney to renegotiate debts based on your income  Continue paying minimums without adding additional debt onto the card
Time to Payoff Debt 

(for $15K loan)

48 months 48 months 60 months 48 months 25 years
Estimated Monthly Payment 

(for $15K loan)

$274.52 $531.05 $382.28 $140.10 $450
Credit Impacts Typically rebounds by 100 points in 18 months Depends on account history Depends on account history 10 years Depends on payment history

What if you do nothing at all?

This depends on your situation.

           If you’re current on your credit cards

Making minimum payments is an option—but not a very good one. Even if you stop using your cards completely, it could still take you years to pay them off. And you won’t just pay what you owe now. As long as there’s money on the card, you’ll be paying interest on that debt.  

           If you’ve been unable to make payments…

We know it’s tough, but ignoring debts can lead to severe consequences. Those collection calls—they won’t stop. And the worst-case scenario is that the creditors take you to court, which could lead to long-term wage garnishment.

What’s next?

We know, we threw a lot of information at you. But we want you to know that even if you don’t feel like you have options, you do.

If you’d like to hear more about your debt-relief opportunities, talk to one of our financial experts <contact link>. 

 

Or if you’re ready to pay off your debt and reach your goals, click here to get started <get started link>.

 

 

*Note that advantages are not guaranteed, and each person’s debt settlement experience is unique.

Glossary

We know, the finance industry practically has its own language! Let’s cut through the jargon with this helpful glossary. You’ll be a pro in no time.

Accrue: To accumulate over time. In this case, we’re talking specifically about accumulating interest. Say you have $100 with 15% interest. In the first month, you’ll owe $100 + 15% = $115. But the following month, you’ll owe $115 + 15% = $132.25. The longer your debt accrues interest, the more you’ll pay.

Creditor: A creditor is a person or business you owe money to. In this case, it can be your credit card company, a collection agency, or other financial institution.

Wage garnishment: A court mandate that takes up to 25% of your income out of your paycheck to pay off your money obligations.

 

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LendStreet mentioned in American Banker.

LendStreet and its unique approach to the Debt Settlement space

Lend Academy – LendStreet recently closed a significant funding round as it looks to help struggling consumers get back on their feet.

Prudential Financial and Radicle Impact Lead Series A Funding for LendStreet

PR Newswire – LendStreet Closes $7 Million Equity + $110 Million Debt Financing to Support Growth and Mission to Improve US Consumers’ Financial Health.

How an Earthquake in Haiti Led One Banker from Wall Street to LendStreet

Medium – Natural disaster, financial crisis, and a personal mission to drive change led LendStreet CEO Jerry Nemorin to launch a company to help Americans in need of debt relief.

LendStreet Lands $28 Million Funding Facility to Help Consumer Debt

Black Enterprise – LendStreet announced today it raised a $28 million credit facility from FLOCK Specialty Finance. This capital infusion will allow the company to help even more consumers get out of debt. “FLOCK’s capital allows us to begin scaling our loan portfolio and expand our customer pipeline”, LendStreet CEO Jerry Nemorin says.

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Fast Company – LendStreet mentioned in article about how you can use your MBA for good.

LendStreet Announces $28 million Credit Facility to Help More Consumers Restructure Their Debt

Press Release – LendStreet today announced it has raised a $28 million facility from FLOCK Specialty Finance to fund loans on its site. The company will use the funds to help more consumers restructure debt and improve their financial health. (more…)

LendStreet’s Jerry Nemorin on Mission to Improve America’s Financial Health

Bankless Times – Jerry Nemorin, the founder and CEO of LendStreet, elaborates on his company’s commitment to provide relief for the millions of Americans that are afflicted with burdensome debt. Along with its loan program, LendStreet is also developing tools which help people better understand and manage their credit – teaching them, for example, that not all credit is bad and if you can cheaply obtain the best credit rates you can build assets instead of creating liability.

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