Why One-Time Settlements are the Key to Successfully Minimize Debt?
When an account becomes Non-Paying Account, a one-time settlement is one of the main negotiation processes between a debtor and a creditor is the one-time settlement. In this process a debtor is required to pay an amount less than the total amount owned. Normally this strategy is used for recovering unsecured debts, but it is an effective strategy to recover Non-Performing Assets as well.
One-time Settlement Process
In this NPA Account Settlement process, the task of debt settlement is generally initiated by the debtor. Alternatively, it can be initiated through a debt settlement company as well. Broadly this process is categorized into three sections.
Fund accumulation
When the debtor stops making payments on the loan, the fund is accumulated in a separate account. There is dual purpose of this action: it prepares a lump-sum amount for the settlement offer. It also offers leverage in negotiations because the creditor wants to recover at least a portion of the debt.
Negotiation for settlement
When a substantial amount gets accumulated, the debtor approaches the creditors to negotiate a reduced paying amount.
The negotiation process takes some time. How much time will be required? It depends on the financial situation of the debtor and of course, the willingness of the creditor to settle.
One-time settlement
Once the debtor and creditor settle an agreement, the debtor pays the agreed-upon amount. The remaining amount is forgiven. If the negotiation fails, then the debtor has to pay the full debt amount. In addition to it, interest amounts and late fees, if any, are required to be paid.
Why is a one-time settlement a Good Idea?
As far as NPA Account Settlement is concerned, it is a viable option. However, it largely depends on individual circumstances. There are also drawbacks to this process.
What are the factors that make a one-time settlement a great idea?
It reduces debt
One of the biggest benefits of debt settlement is it reduces the total debt owed. When the creditor ends with a successful negotiation, it can bring down the principal amount significantly.
It reduces the possibility of bankruptcy
One-time settlement can be an alternative to bankruptcy. It is a good thing because bankruptcy has more severe impacts on the financial future and credit history of debtors.
It impacts the credit rating
Since the creditor will be asking for a one-time Non-Performing Assets settlement and the debtor will be paying money once. The debt settlement will severely damage the credit rating. Still, this one-time settlement affects the credit rating of the debtor. It takes a longer time to restore the rating to higher levels.
It is a known aspect that credit rating impacts the credibility of the company or individual and its eligibility for applying for new credits, rental agreements, loans, and mortgages.
A few inhibiting aspects
But we cannot say that there are only positive impacts of one-time NPA Account Settlement. There are some limiting aspects as well.
Impact on the financial capability of debtors
If the financial capability of the debtor is tough and he cannot make further payments, then debt settlement may not be a good choice.
Speed of debt repayment
When a debtor applies for a one-time debt settlement, it may take a few months before the actual settlement takes place. The debtor may be able to repay the debt faster than by making regular payments over time.
Conclusion
One-time settlement is one of the impactful and useful ways of reducing Non-Performing Assets. Once the lender agrees to pay the amount as a one-time settlement, the lender might have a better mindset to do negotiations further and make mutually agreeable terms of settlement. Debt settlement is all about how well a lender and borrower can negotiate better terms and conditions.