A quick get out of jail free card when you feel like you’re
drowning in debt can be attractive. A lot of people consider debt settlement in
these situations if they are looking to get rid of their debt, especially if
they feel hopeless. As with most things, debt settlement also has its negative
impacts, so it’s important to explore all options, and weigh the pros and cons
before diving in.
Debt settlement is when you negotiate payoffs of any debt
you have collected over the years, including loans, collections, and any open
accounts like credit cards. Before you can even be considered for debt
settlement, you have to prove your financial burden, and show that there is no
way you can pay off your debt. You will be expected to provide your income,
assets, and total debt owed. If the creditors believe you can manage any
payments, they will help you come up with a debt management plan instead. Debt
settlement isn’t for everyone, and you should explore all options available to
you. It would be smart to hire a credit counselor to help you through your
negotiations since they are experienced in the area.
The biggest pro to debt settlement is that you are given a
very low monthly payment that is more manageable for you. If your settlement is
accepted, you will end up paying a lot less than you actually owe on your
debts. The amount can be 50% less than your original debt, so this will save
you money and presumably, a lot of stress.
On the other hand, there are quite a few cons to debt
settlement, and these are not broadcasted like the pros of debt settlement are.
The biggest downfall is that your credit score will be negatively impacted, and
in a big way. Debt settlement can have as much of a negative impact on your
credit score as filing for bankruptcy can. The damage can last for up to 7
years or more. In addition to the money you are paying to settle your debt, you
will be charged fees and taxes, which can still be a great burden to you if you
are experiencing a financial hardship great enough to even qualify for debt
settlement.
The best way to decide if debt settlement is right for you
is to consult a credit counselor and explore all options that are available to
you.