Debt settlement happens to be a process where you come to an agreement with your creditor, paying back part of the money you owe. Usually this is done in one payment. Many people are using this option to help eliminate their debt, but few take the time to look carefully at how this decision can affect them. If you are considering this option for settling debts, it’s important that you take a good look at debt settlement pros and cons first. Here is a closer look at this option and some helpful information that will help you decide if this is the right option for your financial needs.
Looking at the debt settlement pros and cons is a good idea before you just jump into something you have no information about. There are some advantages to using this rout for debt settlement and here are a few to consider.
– Pro #1 – Eliminate Debt – One of the main pros of this option happens to be that it can help you to eliminate debt. Most companies say that they can help you eliminate at least 50% of the debt you have.
– Pro #2 – Reduce Payments – Another pro is that payments are reduced. Pros and Cons of RAID 1 Often you can make one payment a month, eliminating one bill at a time for good.
– Pro #3 – Eliminate Accounts that are Delinquent – Accounts that are delinquent can often be eliminated, which may mean that these bad entries on your credit report are removed. While this may affect your report, it probably won’t last as long as a bankruptcy would on your credit report.
– Pro #4 – A Convenient Option – Debt settlement is an option that is convenient as well. You can make a single payment to a debtor and hopefully end your problems with debt.
While both the debt settlement pros and cons are important, you’ll find that there are more cons than pros. Here are just a few of the cons you need to be aware of before making this your choice for debt relief.
– Con #1 – Credit Score Damage – One of the main problems with this option of settling debt is that it can damage your credit score. If you’re not even making the minimum payment on your debts, this is going to affect your score and drive it down.
– Con #2 – Charges for Services – There are often charges for services from the settlement company you work with. These charges can build up and take away from the money you have to pay on your debt.
– Con #3 – It may Show on Your Credit Report – There are debt settlement pros and cons, but one of the big cons is that when you settle a debt, instead of showing as a paid off debt, your credit report may show it as a settled debt. This can count against you if you try to get credit or a loan in the future.
– Con #4 – Taxable Income – Another problem is that the debt that is forgiven may be see as taxable income by the IRS. You may need to report and pay on this unless you can show you are insolvent.
– Con #5 – Harassment from Creditors – Creditors may start harassing you if they don’t get their money right away. This can be frustrating and is a difficult part of this debt solution.
The Bottom Line
In the end, you have to look carefully at the debt settlement pros and cons and decide which outweighs the other. In some cases, this can be better than bankruptcy, but there are many negative aspects, such as the reduction in your credit score.