When you carry too many debts, it is obvious to start looking for settlement options that work. Debt settlement comes forth as a viable solution to your credit woes. It involves negotiation with the lenders to pay a fraction of the amount you owe. If you are deep into debt, it can be your leeway to get rid of all financial obligations.
However, not everyone benefits from debt settlement. Sometimes, it may hurt your credit score. Hence, try to understand the pros and cons of debt settlement before exploring the options. Here, they are:
When Does Debt Settlement Make Sense?
When you enroll your debts in a settlement program, you will get dedicated savings to account before starting the negotiations with the creditors. Based on the funds in this account, you may benefit from the negotiators while formulating a payment plan. The system has many advantages like:
If you are looking forward to reducing your debts in a limited period, you may prefer debt settlement companies. They help negotiate the best settlement plan, which is generally lower than the amount due. After the negotiations, you don’t have to pay anything above the agreed sum. Instead of the stress of handling debt collectors and creditors, you can live peacefully once the debts are settled.
Debt settlement is one of the most chosen methods to get rid of your debts, including credit card payments. As you get in touch with a settlement company, you can start negotiating the amount to repay and initiate the process immediately.
Since settlement is usually a lump-sum amount, you simply need to arrange the funds and keep them available in the dedicated savings account to pay off the debts. Also, payment terms can be quite flexible.
Hence, you may repay your debts over five years if you can’t manage a lump-sum payment. Even if you choose a longer-term, there is no risk of debt accumulation due to additional interest or fees.
No Risks of Bankruptcy
As per conventional wisdom, filing bankruptcy is the final resort for people buried under too much debt. It means giving up your assets and allowing your credit ratings to plunge for the next ten years. You can refrain from this process by evaluating the pros and cons of debt settlement to make the right decision. Since your financial situation may be unique, debt settlement can offer better perks to improve your finances.
When Does Debt Settlement Fail to Offer Respite?
Not every person can benefit from debt settlement because the process has some flaws as well. Here are the cons of settling your debts or the situations when it doesn’t work.
- Creditors are not ready to negotiate the settlement amount.
- Your credit score may fall below the acceptable limits because the settlement stays for up to seven years on the credit reports.
- Late payments lead to higher interest and fees as well.
- Debt settlement doesn’t work for secured loans.
Despite these demerits, sometimes, debt settlement may be the only way to repay your loans. So, you may take help from a reliable and knowledgeable settlement company to provide better solutions.