By now, you have probably heard the advertisements about debt settlement. If you are struggling with debt, you may be curious whether a debt settlement company can help you. Everything can seem like a good idea when buried under piles of debt, but debt settlement is not always the best solution.
Like most things, your situation is a better indicator of whether or not debt settlement will be the best way to resolve your debt. In addition, some debt settlement companies are not legitimate and are scams designed to target desperate and willing people to try anything.
However, just because some debt settlement companies are scams does not mean they all are. In some situations, debt settlement companies represent a viable option to help you better manage your debt long-term.
Every debt settlement company has its settlement policies and terms, so it is always careful to read the fine print and ensure you understand things such as your expected interest rate, lowered overall debt, and repayment period before signing a thing.
Suppose debt settlement is the right option for your financial situation. In that case, you should investigate offers from several debt settlement companies to see who can offer you the best terms before signing. Debt settlement will still leave you with a balance owed, so you want to ensure you get the best rates, just like any other loan you consider taking on.
With that in mind, the following will outline a few of the biggest pros and cons of debt settlement to help identify if it is a good choice for you. Take a minute to analyze the debt settlement pros and cons carefully and then decide if the benefits of debt settlement will outweigh the disadvantages of debt settlement in your particular scenario.
What Is Debt Settlement & Is It Right For Me?
Before delving into the pros and cons of debt settlement, it is a good idea to take a second to define debt settlement. Debt settlement usually asks a creditor to reduce the amount you owe in exchange for an upfront payment.
For instance, they may accept your offer if you owe $500 but are willing to pay $298 now. Instead of communicating directly with the company, the debt settlement company you work with will intervene on your behalf. However, sometimes they will also take a cut out of that figure, so if the company offers you a settlement of $298, they may pass it on to you as $350.
Other times the debt settlement company may offer you a loan to take the settlement offer, but interest rates are usually attached to the offer. These are all things you need to be careful about, which is why no one should rush into a debt settlement proposal until they have carefully analyzed the pros and cons of debt settlement.
Benefits of Debt Settlement
The most significant advantage of debt settlement is that it may help you keep your head above water for a more extended period, especially if you have large amounts of debt starting to down you. Debt management plans and counseling programs are great avenues for resolving debt but do not offer fast results. On the other hand, debt settlement can help people find immediate solutions to debt by lowering the total amount they owe to get back on top of their financial situation. Two to four years is a reasonable time frame for legitimate debt settlement programs.
Another significant advantage is that debt settlement can help you avoid costly bankruptcy. If you are close to losing your home because of massive debt or being sued, debt settlement may be better. Even though you will take a credit hit from debt settlement, it will not be as harmful as bankruptcy on our credit record.
Along that train of thought, debt settlement can help you avoid being sued for a past-due debt which is particularly problematic if you have assets that could be counted against you in a lawsuit, such as vehicles or a mortgage.
Cons of Debt Settlement
Of course, lowering your debt has a few strings attached because nothing is free. While your debtors may agree to take a lower price, they will report the debt settlement, impacting your credit history. Debt settlement can affect your credit for years and your ability to secure future loans or interest rates. Sometimes, it can even reflect poorly when you apply for a job.
Second, there are a lot of scams out there, and debt settlement providers often charge high fees in exchange for “helping you” negotiate your debt. Some companies will tack on fees in the thousands to help you get your final debt amount down, and their fees are piled on top. Avoid shady debt relief companies by only working with a licensed debt relief firm in your state. Also, consider a debt settlement attorney or licensed law firm that can represent you when dealing with aggressive creditors.
You could also pay a debt settlement company a fee to help, but the creditor refuses to settle. Creditors do not have to accept a debt settlement; if they do not negotiate, you will still own the creditor and lose the fee you paid to the debt settlement company.