Usually, a debt settlement program can be viewed as a last resort action, when the debtor is in risk of bankruptcy. In such extreme cases, both the parties at stake-the creditor and debtor might benefit with a debt settlement program, which lets the creditor recover some amount from the outstanding balance of the loan and the creditor gets a reduced amount from the original balance of the loan as the new outstanding amount.
While going into a debt settlement program, it is essential to be aware of the terms and terminology the companies use in their day to day dealing so that the one who is opting for the program is not left in the doldrums when they converse in their technical jargon.
Terms and Terminology
- Debtor: A debtor is classified as an individual entity who has acquired an outstanding amount due to non payment of dues due to inability or failure of repayment. The loan would have been furnished by a lender or an institution. The debtor can be a private citizen or an organisation. In a debt settlement program, the debtor would be responsible for adhering to the guidelines laid down, after adjustment in the outstanding amount by the lender.
- Creditor: A creditor is an individual or an organisation which is stuck with an outstanding amount of loan due to inability or failure of repayment of the whole amount of loan by the debtor. In a debt settlement program, the creditor is negotiated with for the reduction in the balance amount.
- Lending institution: A lending institution is the original entity which the outstanding amount of load is owed to. The whole debt settlement program pivots around the lending institutions as it will decide the terms, conditions and the final amount of outstanding loan, which is then forwarded to the debtor for clearance.
Types of Debt Settlement
There are various types of program which a person or an organisation under debt can refer to for the settlement of debt.
- A standard debt settlement program sets up a standardised process of payment of the outstanding amount which will be done on a monthly basis. The decision is arrived in association with the debtor and the lending authority.
- Extended Debt Settlement program allows an extension of the stipulated time for the repayment of the balance amount of the outstanding loans. This ultimately means that the monthly payment amount reduces, thus diluting the burden on the debtor.
- Graduated Debt Settlement program allows for a variation in the amount of payment on a monthly basis, thereby affecting the time span of the original loan, in most cases increasing it by a few months or years.
- Prorated Debt Settlement program considers the current status of income, earnings and wages as the determining factor in the final mark down of the outstanding amount of the loan which will be repaid by the debtor.
- Lump Sum Debt Settlement program will require the debtor to present the reduced outstanding amount of loan, all at once, in lieu of a reduction in the amount.