Like nearly everything else, debt settlement has its pros and cons, its advantages and disadvantages. But, these days, with nearly everyone in one kind of debt or another, the pros tend to outweigh the cons, making debt settlement a viable option for thousands of people.
Mortgages, car loans, student loans, and credit card payments are all common sources of debt in today’s world. While most of us are able to keep our heads above the water and keep up with our debt payments, it is uncannily easy to let our debts grow and get out of control. When this happens, you might find yourself in a tricky position where you can’t make payments on all of the debt that you owe. You might even find yourself in a position where paying off all of the debt that you owe, even long into the future, looks impossible.
If this happens or has happened to you, then it might be time to look into debt settlement. But before looking into the above mentioned debt settlement pros and cons so you can see if it is the right plan of attack for you, you should first know what it is and how it works.
Debt Settlement Defined
In its simplest sense, debt settlement is reducing your total debt to a payable amount. This is done by negotiating with your creditors – often with the help of a debt settlement company (be sure to avoid debt settlement scams in the process) – until they accept less than the full amount that they are owed. Though this train of thought on the part of creditors might seem counterintuitive at first, they decide to offer lower amounts so as to avoid total losses like they would face if you were to declare bankruptcy.
Now that you have a basic idea of what debt settlement is and what it can do for you, let’s look at its positive side, its pros.
Debt Settlement Pros
The largest draw of debt settlement companies and other debt relief programs is the fact that they can help you become completely debt free. They can help you put the worry to rest and get back on track with your life. And who doesn’t want that?
Here are a few of the advantages, the pros, of seeking professional debt settlement:
- You can be absolutely free of debt in as little as 24 months.
- You can possibly save up to 50% or more of your money by paying off your debts for far less than you actually owe.
- If you’re lucky, your creditor just might re-age your accounts and bring them to a current status. This will boost your credit score right away since your credit has probably already suffered from your being in debt for so long.
- Almost all unsecured debts, including medical bills, that are in excess of $1,000 can be included when you professionally settle your debt.
- You might be able to negotiate with your creditors and convince them not to put negative marks on your credit report.
- Legal action can usually no longer legally be taken against you and your settled debts. This helps get pesky and tiresome debt collectors off of your back.
Though these are all undeniably benefits, the biggest pro of debt settlement of all is that it allows you to get your life back on track, both personally and financially. Furthermore, settling your debt allows you to keep more money set aside for other things such as rent, utilities, food, and entertainment, thus greatly improving the overall quality of your life.
Debt Settlement Cons
Yes, debt settlement does have numerous pros, in particular the peace of mind and increased financial security that comes along with releasing yourself from the heavy pull of overwhelming debt, but debt settlement has its dark side as well. Truthfully, there is no quick and easy way to release yourself from the wrath of your debt. There are almost always a handful of cons that come along with debt settlement.
A few of the most common cons, or disadvantages, of debt settlement include:
- Your credit will almost always take a hit when you settle your debts. This will make it harder for you to take out future loans on credit.
- You will likely have to pay an upfront fee plus a monthly fee to your debt settlement company for their help in settling your debt.
- You can only use debt settlement for unsecured loans and medical expenses. It can’t be used to reduce car loans, mortgages, or other secured loans.
- Even though your debt will be forgiven, you will still owe taxes on it. Forgiven debt is taxable and it needs to be reported each year. If you’re struggling terribly with your finances, owing tax on the debt might put you in an even deeper hole.
- Not all creditors will agree to work with a debt settlement company. If you try to use one and find out that this is so with your creditors, you might find that they treat you even more harshly when attempting to collect your debts.
- Though there are numerous legitimate debt settlement companies out there, the entire industry has suffered a negative stigma from the questionable practices of untrustworthy scam companies.
What’s This All Add Up to For You?
After reviewing the facts, the how-to’s, and the pros and cons of debt settlement, it is up to you to make a final decision regarding the matter. Do the pros outweigh the cons like they do for thousands of people across the country? Or is your situation not right for debt settlement like so many other people? Research, get the facts, look at the debt settlement pros and cons once more, and then make the informed decision that will best benefit you.