Many people are turning to debt settlement as a way to resolve their debts and lead a financially stable life. It involves reaching a settlement with creditors on paying less on the debts owed to them by offering a lumpsum payment. However, you will have to first create a detailed debt settlement plan before reaching out to the creditor. This blog will look at the pros and cons of debt settlement, and how to go about making the right decision for your situation.
Pros of Debt Settlement
Debt settlement is a very powerful tool for people who are seeking to get rid of their debt problems. However, it is vital to note that creditors have no legal obligation to agree to debt settlement. Here are some upsides of debt settlement:
Decreases the Debt Amount
Debt settlement companies can negotiate with your creditors on your behalf to try to get them to agree to a lower payoff amount. If they are successful, this can save you a significant amount of money.
Helps Avoid Bankruptcy
Bankruptcy can impact your credit records for up to 10 years. Debt settlement can be an effective way to avoid bankruptcy since it allows the debtor to repay their debts without having to file for bankruptcy protection. However, there are a few things to keep in mind when considering debt settlement as an option to avoid bankruptcy. Even if a creditor does agree to settle, the debtor will still need to come up with the money to pay the settlement amount.
Pays Off Debt Fast
One of the biggest advantages of debt settlement is that it can help you pay off your debt much faster than other methods. It essentially results in the creditor “closing” your account. You may have the option to close out your debt in one to two years by opting for debt settlement.
Cons of Debt Settlement
Debt settlement comes with certain potential negative effects as well. They include:
Creditors Have Power
Creditors have the power to dictate their own terms in debt settlement. Some of these terms may result in negative financial consequences for you in the long run.
Has a Bad Impact on Credit History
When you take out a loan, it has an impact on your credit history because it increases your total debt and also affects the percentage of available credit you’ll receive from lenders. If you are unable to pay off all your debts due to financial problems, lenders may report it to credit bureaus and this can lower your score significantly. Consequentially, you will have more trouble getting loans in future.
If you’re settling with a creditor who has agreed to accept less than 100% of what you owe, you could receive less money than what’s owed in taxes and penalties if any are due at the end of the year.
Debt settlement is an effective way of getting rid of debt. With Briteside Solutions, you have access to complete knowledge about your financial rights. So, contact us now to learn if debt settlement is the right solution to your debt problem.