Pay the agreed amount to avoid the cancellation of a debt settlement agreement. Depending on the terms of the contract, if the settlement isn’t paid, there could be more serious consequences than just fines and fees. You would also be back at square one regarding debts and defaulted accounts.
If you cannot pay a debt settlement payment, you may have a legitimate reason for doing so. In some cases, you may have earned enough money from a job promotion or inheritance to pay your debt in full. As a result, an account marked “paid in full” would appeal to you more than one marked “settled.”
If you face more severe financial difficulties, you may be unable to pay the settlement. Regardless of the reason, failing to honor your settlement agreement has its disadvantages.
This article will discuss the adverse effects of not paying a debt settlement and offer tips on avoiding them.
What Consequences Does Not Paying A Debt Settlement Have?
Different consumers approach debt settlement in different ways. Some people settle their debts independently, while others hire debt settlement or debt relief companies.
Your debt settlement method will determine what happens if you stop making payments. You and the creditor/debt collector would need to work together to cancel an agreement if you negotiated settlements directly with creditors or debt collectors. As a result, if you use a debt relief company, you will also have to inform them of this change.
No matter how the settlement was negotiated, you will likely face the following issues.
- Creditors or debt collectors will contact you again if your debts do not go away.
- You may be faced with higher interest rates on your debts.
- There will be a resumption of penalties and fees.
- Credit can be further damaged if you stop making payments toward debt settlement.
- There will be a reinstatement of late fees.
Take a closer look at each of these consequences.
Debt relief is not possible
The original purpose of your debt settlement agreement was to get out of debt. As a result of the failure to pay the settlement amount, you are back at square one. Your creditors might reinstate the original amount if you breach the agreement if they agree to accept a lower amount.
Using one may lose some or all of the money you have already paid to a debt relief program.
Interest rates will spike
One advantage of debt settlement is that creditors often agree to lower interest rates. As a result, if you cannot comply with the contract, your creditor will likely reinstate the initial high-interest rates you could not pay.
If they fail to fulfill the first settlement contract, you may be able to renegotiate better rates, but it is doubtful that they will do so.
You agree to the terms of the Debt Settlement Agreement when you sign it. So, you may have to pay fines if you don’t pay the settlement according to the contract. For example, a creditor may let you settle for less than you owe, but they may tell you that you will have to pay certain fees if you don’t keep your deal. Then you would have to pay for breaking the contract.
It is also common for debt relief companies to charge nonrefundable fees that you voluntarily agree to pay.
Defaulting on a debt settlement can damage your credit
It is typical for your credit score to have already been severely damaged when you opt for debt settlement. It is, however, a sure way to further damage a debt settlement agreement if you do not pay it. Additionally, the number of months in default has increased due to all the late repayments reported to your credit report.
Get ready to handle debt collection calls and letters
After you negotiated and agreed to a settlement offer, the collection calls likely stopped. If you do not pay your debt by the pay-by-date on the contract, your creditor may automatically cancel the agreement and begin collecting from you.
It is always a good idea to inform the creditor of your intention not to pay the debt settlement. They may accept your proposal to modify the terms of the initial contract. Nonetheless, if you cannot convince them to work with you under new terms, the calls will resume.
Your creditor may reinstate late fees
Deb settlement is attractive in that creditors usually agree to cancel late fees. It is intended to help you eliminate debt more quickly. You will likely be required to pay any fees that have been forgiven if you fail to pay the settlement amount.
You may be sued
The terms of a debt settlement contract are legally binding. Paying off your debt early will only result in a lawsuit if you break your debt settlement agreement.
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Creditors may decide to file a lawsuit against you if your financial circumstances have changed and you are unable to meet the terms of the agreement. If you receive a Summons and Complaint notifying you that you have been sued, you should file an Answer as soon as possible. By filing an Answer, you are preventing a default judgment against you and giving yourself time to determine what steps you need to take next.
If you cannot pay a debt settlement, what should you do?
There are no perfect moments in life. Even if you have the best intentions, you may be unable to pay your debt settlement. Here are some tips to help you if you find yourself in such a situation.
- Contact your creditors as soon as possible.
- Review your contract carefully and consider the consequences of not paying.
- Inform your debt relief company of your decision as soon as possible if you hired one.
- Set up a new repayment plan as soon as possible after evaluating your situation.
- Become less reliant on debt.
In the same manner, as other settlement agreements, a debt settlement agreement is legally binding-failure to pay constitutes a breach of contract. Therefore, you should be prepared to deal with the consequences.
To settle your debt, follow these three steps
You may reach out to the creditor or debt collector during any stage of the debt lawsuit process if you are being sued for a debt you owe. These are the three steps you need to follow:
- Filing an Answer to the debt lawsuit should be done as soon as possible.
- Start negotiations by sending a debt settlement offer.
- You should get the debt settlement agreement in writing.