Learn the pros and cons and find out if debt settlement is really a good idea for your financial situation.
In a nutshell, debt settlement is the process of negotiating with creditors to be able to pay a lump sum that’s less than the full amount of debt you owe. This practice is usually offered by third-party debt settlement companies who work to negotiate with creditors on your behalf. Also known as debt reduction, or debt resolution, settlement negotiations often result in creditors agreeing to forgive a large part of the debt, allowing a debtor to make a single payment for less than the full balance owed.
Is Debt Settlement Worth it?
The short answer: Yes, debt settlement is worth it if all of your debt is with a single creditor, and you’re able to offer a lump sum of money to settle your debt. If you’re carrying a high credit card balance or a lot of debt, a settlement offer may be the right option for you. There are numerous debt settlement and credit card companies that promise to help you settle your debt for half or even a small fraction of the total balance you owe, but is debt settlement really a good idea?
To learn more about debt settlement and understand if this makes sense as a debt relief option for your financial situation, you need to better understand the pros and cons to settling debt.
Debt Settlement Pros and Cons
There are certainly pros to debt settlement, but is it really a good idea to go through with? What are the benefits of a debt settlement program, and do the risks outweigh them in your scenario? Read on below to find the answer and better understand if debt settlement is a good idea or not for you.
Settling a debt is worth it and can help people out of debt at a cost that is less than what owe a creditor. Here are the three key reasons why debt settlement is a good idea and when to pursue this option:
1. Settling debt will allow you to pay off the amount you owe for far less than the full balance.
Unlike debt consolidation, with the help of a reliable debt settlement company you can pay a lump sum to a creditor through a straightforward process that will alleviate debt.
2. Debt settlement can help you avoid bankruptcy and provide you with an effective strategy for paying off debt at a low cost.
If you’re in extreme financial hardship and you are not able to make monthly payments, yet have enough cash on hand, a debt settlement option can be worth it to save you from bankruptcy.
3. Collectors and creditors will stop hassling you.
If you are receiving non-stop calls from debt collectors or collection agencies, working with a debt settlement company will allow you to erase your debt for a low-cost single-time payment.
If you are struggling to pay off a high amount of debt, you’ll also want to know what the risks are when weighing debt settlement pros and cons. In some cases, the risks of debt settlement may outweigh the potential benefits, so we’ve outlined the top three reasons why debt settlement may not be your best resolution below.
1. Choosing to settle your debt may result in a debt settlement credit score impact.
Settling an account instead of paying it in full can be considered negative and may affect short term credit history because the agreed-upon lump sum amount will cause the creditor to accept a loss compared to what was owed. How much debt settlement will affect your credit score will vary depending on your own personal situation, however being debt free may be worth damaging your credit score to achieve long-term financial health.
2. Even if your debt was not fully eliminated, debt settlement companies may charge a fee.
How much debt settlement companies charge varies, but it is important to understand that you may be charged fees, or end up with additional costs.
3. Creditors may not even agree to negotiate debt settlement.
Unfortunately, there is no guarantee that a debt settlement company will be able to come to an agreement for you with your creditor. While negations are often on the table, there are some creditors who will not be willing to discuss a debt settlement option with a third-party.
When to Choose Debt Settlement
While reviews can often be mixed, debt settlement can be a good choice to help some people more quickly get out of debt at a lower cost than what they owe. If your accounts are drastically overdue and creditors are beginning to worry, a lump sum payment offer in exchange for debt elimination can be a viable solution to have debt forgiven. While change is difficult, breaking free of the debt cycle and eliminating high interest rate credit card debt can be well worth any short term obstacles.
Ultimately, depending on your own personal finance situation debt settlement can be worth it, but it’s important to keep in mind that the debt settlement process can take time. Finding the right company to assist you through the process will be key to resolving your debt issues rapidly and effectively so that you can start building a path to wealth today.
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