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Debt Settlement Pros and Cons
When monetary obligations start to make you feel like you’re in over your head, debt settlement may seem like a good option. This process can be helpful for certain situations, but it involves tricky practices that can end up being detrimental to your financial status. When repaying your debt becomes difficult, make sure you’re aware of all the pros and cons that come with debt settlement before making it an option.
Debt settlement can be beneficial if you’re having a hard time keeping up with monthly payments and you don’t see yourself being able to pay off outstanding balances over a period of time. The most obvious perk of using a settlement company is that the amount you owe to a specific lender can be drastically reduced. Sometimes settlers can work with creditors to lower your debt to less than 50 percent of the initial amount owed.
Unfortunately, there are many more cons when it comes to debt settlement than pros.
First, it’s important to know that in any circumstance, getting a company to settle for a lower amount of money than what was initially owed will negatively affect your credit report. Choosing the right company can be the next issue. Many groups will overcharge and scam customers by using their personal information or imply that the amounts you are paying go toward your debt, which isn’t always true. Some companies won’t inform you that the price you’re paying isn’t helping resolve your debt at all, but instead pays for the fees they charge for their services. These reasons make it important to ask the right questions when screening different companies. Be careful not to choose a settlement program that advises you not to pay your bills for any amount of time. This is a process that is used so collectors and lenders will be willing to settle for a lower payment, because they’d rather have any sum of money instead of nothing. This can further damage your credit score and leave a bad impression with collectors, persuading them to be less helpful.
Remember, debt settlement isn’t for everyone. It should always be considered as a last resort for resolving any outstanding balances. Since it will have a negative impact on your credit score, it should be thoroughly researched, especially if you’re currently in good financial standing. It may not have as high of a risk if your credit score is already low. Though other methods, like debt consolidation programs and nonprofit options, may still be a better option. This way, you’ll be sure that the people you are working with are looking out for your best interest, while helping you to learn more about budgeting and staying on top of your own finances without risking your financial reputation. For more information on debt settlement and debt consolidation, visit our pages, and learn about how our credit counselors can help you.