When a person goes under huge debt and he’s unable to pay it off, it not only poses a huge risk for the person but also for the creditors or lenders because they are afraid of losing all their money. And such a situation projects a huge loss for them. When a person files for bankruptcy and his petition is passed then the creditors stand no chance of ever again recovering any part of their money. Therefore debt settlement works as well for them as it does for the debtors. Hence the settlement is acceptable to both the parties.
When you contact a credit counseling agent they usually ask a few questions,try to understand the cause of your debt, look at your finances and decide whether you are capable of paying back your debt or not. Many credit counseling companies are free for those in need of debt help. But because they need to earn monetary profit too, therefore they officially work for the creditors and lenders. Therefore this is very important to know that they do not reduce your debt amount in any way, instead they negotiate the rate of interest because generally it’s the rate of interest that usually makes the monthly installment difficult to pay. A lower interest decreases the monthly installments and makes it easier to slowly repay the debt. The credit card companies will take the solution readily because they know that by not doing so you may default on the entire amount.
Debt settlements work in a slightly different way. They not only try to reduce your interest rate but also try to reduce your net debt amount by negotiating with the creditors legally on your behalf. Such negotiations usually result in your total debt reduction by up to 50%. This makes the amount which is then divided into installments reasonably easy to pay. Thus opting for bankruptcy is not always the best option because it not only takes time to proceed but also makes your future problem ridden. in such scenarios debt councilors prove to be a blessing in disguise for both creditors and debtors.