What are the pros and cons of debt settlement?

Debt settlement is undoubtedly a debt relief program that will get you out of debt and help you to regain your financial sanity over a period of time. Nevertheless, it is best not to reach a state when you have to resort to any one of the debt help programs. This is because your credit score gets affected and until you clean up your credit report, you may have to deprive yourself from a number of financial benefits. Aside from tarnishing your credit report, there are various other drawbacks of debt settlement. But it cannot be said that debt settlement does only harm. It has several benefits too and this is one reason why so many debt settlement companies have flourished and so many debt trapped people have benefited from this plan. In this article we will highlight upon the pros and cons of debt settlement.

What are the benefits of debt settlement?

ü  The most noticeable benefit of a debt settlement plan is that you know now you have to pay much less as compared to what you were supposed to pay initially. As soon as the percentage of reduction in your debts is decided upon, it is this time itself when you get a true picture of your prevailing debts after negotiation.

ü  If you have decided to enroll for the debt settlement plan, you know you have the representatives of the debt settlement firm to talk on your behalf. So, you get a confidence to tackle with your current debt situation as you know there is someone to stand by you. However, the firm you choose has to be really good and not the ones that are fly-by-night firms or the debt relief companies that are out there to extract all your money without offering any benefit.

ü  Debt settlement plans can also to some extent eradicate the penalty or overdue fees.

ü  As the interest fees and other fees are eliminated to a large extent, your debt payments become affordable.

What are the drawbacks of debt settlement program?

Just as debt settlement plan has several benefits, it also has a few drawbacks. These disadvantages can be summarized as below-

ü  Debt settlement can have an adverse effect on your credit rating. If you are paying the minimum amount towards your debt payment, your creditors will not chase you right away till the time you don’t fall behind on payments and stop the same. Unless you have a debt amount that is above USD$10,000 you will not be eligible for debt settlement program.

ü  Oftentimes it is seen that while the negotiation is going on if the creditors find that the amount offered for settlement will not suffice, they choose to file lawsuit against the debtor. So, it is important to take along an experienced debt settlement firm that can tackle the situation well.

ü  The amount that is reduced in a debt settlement program is usually treated as an income and sooner or later you have to pay for it as it is shown in the current year tax return file.

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