Structured Settlement

Structured settlement summary:

• In a typical debt settlement agreement, you make one lump sum payment to your creditor.

• Structured settlements let you pay off debt for less than what you owe in a series of payments. 

• Once you make the agreed-upon payments, the rest of your debt is forgiven.

Structured Settlement Definition and Meaning

A structured settlement is an agreement between you and your creditor to pay off a debt for less than what's owed. You can negotiate a settlement yourself or work with a debt settlement company. 

Once a creditor agrees to a settlement offer, you pay that amount. In some settlement arrangements, you'd make a single lump sum payment. A structured settlement lets you split the amount due into a series of payments. 

More About Structured Settlements

Debt can pile up for different reasons. For example, you lose your job unexpectedly, or you get sick and can't work. There's no money coming in, but you still have bills to pay, so you turn to credit cards to cover expenses. 

It's stressful, and you need relief, so you start to research debt settlement as an option. Debt settlement can help you get rid of debt for less than what you owe and ease the financial pressure. If a creditor agrees to a settlement, the rest of what you owe is forgiven. 

You learn that there are two ways to pay off a settled debt. You can either make a lump sum payment or get the creditor to agree to a structured settlement. 

Structured Settlement: A Comprehensive Breakdown

Structured settlement is usually a term associated with lawsuits. When someone wins a judgment in court, they could collect what's owed to them in a series of payments instead of a lump sum. They do it through a structured settlement. 

The same idea applies when you're talking about structured settlements and debt relief. Only, instead of someone paying money to you in installments, you're making payments to your creditor (or creditors, if you're settling multiple debts) on a set schedule. 

Why would a creditor agree to a structured settlement? After all, they could bring a credit card debt lawsuit against you to try to collect the full amount due. 

The simplest answer is that a structured settlement may be less cost and less hassle than a lawsuit. Even though the creditor doesn't get the full amount owed, they still get something. They don't have to go through a lengthy court process either. Even if they were to win a debt lawsuit, that’s just the first step. A creditor still has to take additional steps to get any money from you. 

Structured settlements can benefit you, too. 

• You could pay off credit cards and other debts for less than what you owe.

• Several installment payments may be easier to manage versus one large lump sum payment. 

• Debt settlement could help you get rid of debt faster than by making minimum payments, so you can focus on rebuilding your financial life. 

Of course, a structured settlement isn't a guarantee that a creditor won't try to sue you. But if your creditors do agree to settle, that could help you avoid a situation where bankruptcy is the only option left to you. 

Real-Life Example of a Structured Settlement

Let's assume you owe $5,000 to a credit card company and you're six months behind on payments. Your account is on the verge of being turned over to a debt collector, so you reach out to the credit card company to offer a settlement.

After some haggling, the credit card company agrees to accept $3,500 to satisfy the debt. They accept a structured settlement to be paid over three months. You agree to pay:

• $1,000 in month one

• $1,000 in month two

• $1,500 in month three

After the third payment, your structured settlement is complete, and the rest of the debt is forgiven. 

What if you don't want to negotiate yourself? You could work with a debt settlement company to reach an agreement. A debt settlement company can:

• Review your debt situation to decide if a settlement is right for you.

• Help you decide what amount to deposit into a dedicated account each month. The amount should be high enough to keep moving you forward toward resolving your debts, and low enough to be affordable within your budget. The dedicated account is held at an insured bank or credit union, and you own and control it. 

• Negotiate with your creditors to settle your debts. 

• Facilitate payment from your dedicated account to your creditors, once an agreement is reached and you approve it. 

You get the benefit of professional negotiations, without having to deal with creditors yourself. Monthly payments may be lower in the program than what you were previously paying. Best of all, you could potentially get rid of your unsecured debts in two to four years, for less than the full amount you owe.