Is debt settlement the right option for you?

debt settlement

After the pandemic, as per RBI’s report, the number of NPA accounts increased. People have been struggling hard to pay off their monthly EMIs and loans. Moreover, there has been an increase in payday loans, which has increased the number of NPA accounts. The debt burden and harassing calls from the creditors have added to the stress of many people. Options available in the market to resolve your debts. One of the options is debt settlement. Debt settlement is a widely used concept in western countries, but it hasn’t been in much practice in India.

But first thing first, what is debt settlement?

Debt settlement is a debt relief process of paying a lump sum amount to the lender under certain circumstances when the borrower cannot repay the whole debt, including the interest. The settlement percentage ranges between 10% to 50% of what the person owes. Even though it sounds easy, it has its advantages and disadvantages. It is not suitable for everyone.

If you are struggling with debts and cannot get out of the debt trap, you can explore debt settlement. Now, you have to figure out if it is the right option for you or not. Let us have a look and help you find whether it is for you or not. 

First thing first, what are the requirements to settle your debts?

It is the right option for you if you have:

  1. Unsecured debts
  2. Behind on your payments
  3. A genuine hardship

Unsecured debts

Every debt is not eligible for settlement; you can get settlement only on unsecured debts. Precisely, debts that do not have collateral or anything secured against them qualify for settlement. The collaterals can be property, shares, bonds, FDs, and more. Now the question is, which debts are unsecured? Well, to put it simply, debts like personal loans, credit card debt, unsecured education loans, payday loans, and unsecured business loans are unsecured debts. In the case of secured debts, the lender has the right to sell your collateral to recover the lent amount.

Behind on your payments.

Situations can vary from one point to another; people usually borrow money based on future income, which often lands people in trouble. When you cannot repay your debt for more than 90+ days, your account becomes delinquent. In case of delinquency, the bank declares your account as a non-paying asset (NPA). That is when you become eligible for settlement. Settlement depends on the type of account, the amount you owe, account delinquency, and the creditor. In a nutshell, you are eligible for settlement only when your account is delinquent.

A genuine hardship.

Troubles don’t see your responsibilities; they come uninvited. Time is uncertain, which means you can get in trouble at any point in time. To settle an account, you have to have a genuine hardship. Hardship can be a job loss, medical emergency, divorce, or death of a spouse. If the hardship is genuine, the lender can consider the situation and offer a settlement percentage between the range of 10% to 50%. 

What is the process for debt settlement?

Financial freedom is not a walk in the park; it is a long process depending on your debt load. It takes financial discipline and time to gain financial independence. If you are enrolling in a debt settlement program, you should note that it has repercussions, and you need to follow a process to settle your debts.

Let us have a look at the process:

Consult: Please note that debt settlement is a legal process in India. You can reach out to the bank or NBFC directly and get your accounts settled, but having a professional debt settlement company or counselor by your side can be more fruitful. If you are consulting with a debt settlement company, tell them about your debts, hardships, delinquency, and current situation.

Qualify: Once the counselor analyzes your situation, they would tell you if debt settlement is the right option for you or not. If you qualify as per the points mentioned above, you can go ahead and enroll yourself in the debt settlement program. If not, they would guide you to choose a better option.

Enroll: The debt settlement company will enroll you in the program and set up a Special Purpose Account (SPA) for savings, a multi-party account that no one can access without your permission.

Save: Savings are the key to regain financial independence. Stay on a budget, ensure that you are not overspending, and save as much as possible. 

Negotiate: Once you have a lump sum amount of 50% of one of your accounts, the negotiators’ team will reach out to your creditor. They would negotiate the terms and conditions along with the settlement percentage.

Settle: After negotiation and agreement on the settlement amount, you will get a settlement letter, and your account will be settled.

Freedom: As all your accounts get settled one by one, you will be able to get financial freedom and plan a financially secure future.

If your debts are getting out of hand and exploring your options, you can reach out to our trained debt counselors at 01246663666 or fill in your details on our website. Tell them about your situation, explain your hardship, and our debt counselor will advise you if debt settlement is the right option for you or not.