There are many obvious benefits of debt settlement you gain when burdened with outstanding debt. You are recently divorced, lost your property, or pay for credit card debts with other cards. No matter what kind of situation you are in, debt settlement companies can help you.
If you are eligible for the program, debt settlement can lift a huge burden off your shoulders. Before you go this way, it is better to learn about debt settlement pros and cons.
Benefits of Debt Settlement
Avoid Bankruptcy
If you are unable to make the payment, filing personal bankruptcy is not your only option. Bankruptcy, while a good solution, can remain on your credit report for over ten years. When you apply for a loan or job, you may have to reveal this fact. If you hide it, and the bank or potential employers finds out, it amounts to fraud.
You can avoid all these negative consequences by choosing debt settlement. Although it remains on your credit report for seven years, there will be no public record.
Clear Your Debt in Less Time
When you pay a lump-sum amount to your creditor, it becomes easier to repay the debt. Typically, your debt repayment schedule, without this program, may take decades. But now, you can repay the debt in two to four years.
Debt Relief from Highly Burdening Payments
When you have legitimate financial problems, debt settlement can help you. If you file bankruptcy, creditors know that they will not receive anything. After the negotiations, you can reduce the payments or interest, and be free of the debt. You also incur fewer expenses.
Drawbacks of Debt Settlement
High Fees Even if You Are Not Relieved of the Whole Debt
Debt settlement companies can only collect fees from you after your creditor signs the agreement. But even if the whole debt is not waived, you pay proportionate fees to the company. For instance, the overall debt amounts to $8,000, and you agreed on a 50% fee. Even if $4,000 is settled, you will pay 50% of that.
Or, you have five creditors with whom your debt relief company is negotiating. Once at least one of them agrees to settle, you may start paying fees.
Your Creditors May Not negotiate
There is no obligation on the creditors’ part that they have to agree for a settlement. They may doubt that your financial situation is good. They may have some issues with your debt settlement company and refuse all negotiations.
Affects Your Credit
Before you start the negotiations, you may stop making payments on the debts. Your debt settlement company also insists on that. So, for the few months that you miss payments, your credit score gets impacted. Also, after the settlement, the fact stays on your credit report for several years. Your accounts are considered delinquent accounts.
The prospect of paying less for your debt than what you owe is very appealing. But consider debt settlement pros and cons, and make an informed decision. However, other options like bankruptcy are only a last resort. You can always contact financial experts who will be willing to help you through this. Find an excellent way to eliminate your debt.