Debt Settlement Pros and Cons

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.