No doubt you have read the claims by companies offering debt settlement solutions about how much debt they can save you.
40%, 50%, and sometimes as high as 70%.
Are these claims for real? And even if they are, what are the chances that you will even finish a debt settlement program so that you can realize these savings? let's have a look at the statistics.
According to TASC (The Association Of Settlement Companies) in 2009 their member companies settled approximately $1.1 billion of consumer debt for about $500 million (a total savings of $600 million). On a percentage basis that works out to...
Pretty impressive to say the least. Of course, that 55% figure is and average, meaning that same debts were settled for less than the 55% discount, but on the flip side, many were settled for more than a 55% discount.
One of the things that critics of debt settlement solutions like to claim is that the percentage of people who actually complete a debt settlement program (settle all of their unsecured debts) once enrolled is very low. The actual numbers however, appear to suggest otherwise.
According to TASC, of all the consumers who entered debt settlement plans with their member companies, 34 percent completed the program. And when you compare that to the figures for debt management plans (only about 20% to 25% of consumers complete those plans) the numbers are not out of line.
Why don't the remainder of the people complete the program? Well, I'm sure there are many reasons, but here is my guess as to what the main reason is. Too many people are "sold" on debt settlement that are simply not financially qualified for such a debt relief program.
But that does not mean that everyone who is in debt should choose this option as a means to ridding themselves of debt. Without going into too much detail, here are the two main things that determine if you "qualify" to settle your debts...1. You have experienced a financial hardship in your life. Loss of job or reduced income. Serious illness. Death in the family. Etc. 2. You can raise approximately 50% of what you owe over the next 30 months in order to make settlement payments. This can come from a monthly savings program (meaning you must have an income) or from another source like a loan from a family member, line of credit from your home or perhaps even a loan from your retirement account.
If we look at the "big picture" of the stats that were given above, 1 out of 3 people who enter a debt settlement program can expect to reduce their debts by 55%. Not bad. But, and I have said this many time before, debt settlement is not for everyone. So make sure that you consider all of your options before choosing any debt relief plan.