Debt Settlement Pros And Cons
Debt settlement can be a very effective strategy for paying off your credit card debt. But it is not the right strategy for everyone. How do you know if settling your debt is right for you?
Here are some debt settlement pros and cons to help you decide:
- You will pay off your debt for less than you owe
By settling your debts you can often save between 40-60%, depending on the credit card companies you owe money to. Not only do you get the savings on the balance, but you will also save on interest. And you wont have to make the monthly payments any longer. So debt settlement can help you free up a lot of money.
- You will get out of debt faster than paying the minimum payment
If you have $10000 in credit card debt and you make the minimum payment every month, it will take you 10 years to get out of debt. Thats a long time! With debt settlement, youll be out of debt in around 2 years. Once you get to this point your financial life will improve dramatically.
- You can avoid bankruptcy
If youre considering bankrutcy, then debt settlement may be an attractive alternative. Many people feel that bankruptcy is the last resort. So debt settlement can help you get out of debt without the stigma of bankruptcy.
- You dont need an attorney
You must consult with an attorney to go through bankruptcy. You do not need the help of an attorney to utilize debt settlement, although many attorneys offer this as a service to their clients. You can even do the entire settlement process completely on your own, although you should learn how the process works before you get started.
- It will lower your credit score
Anything you do other than paying your bills on time will lower your credit score. Debt settlement is no different. Same with paying your bills late. So many people have already hurt their credit score by the time they consider debt settlement. And for many people, the benefits of getting out of debt can outweigh the drawbacks of lowering your credit score.
- You must be behind in your payments (or stop paying if you are not)
Debt settlement is designed for people who are already behind on their payments. So thats an indication that youre already in trouble. It is not designed for those feeling the crunch of high credit card debt but can make their payments. But if you are on the edge of financial disaster, you can stop paying your bills, in order to the leverage you need to negotiate a settlement.
- You will get calls from your creditors
If you are not already receiving calls from your creditors, you will start getting them. After all, the creditors want their money, and it is your responsibility to pay. Never ignore these calls. If you have hired a professional to settle your debts, they should advise you to have the creditors call them. If you are doing it yourself, take the calls and explain the situation. In either case, be ready to get pushed real hard to pay immediately, as that is the callers job.
- You will pay taxes on the savings
Any money you save will be treated as income for tax purposes. So youll need to pay taxes. In most cases this is still far less than the amount you would have paid towards principal and interest, so you will probably still end up ahead. But it is another expense to factor in when deciding whether or not settlement is right for you.
Debt settlement can help you get completely out of debt. Like with any financial decision, there are benefits and there are drawbacks. Make sure you consider both before you make your decision. But whichever debt reduction option you choose, make sure to come up with a plan, research any company or individual you decide to work with, and then most importantly of all, take action!
Want to learn the truth about debt settlement? These debt settlement tips will help you learn how debt settlement really works so you can decide if debt settlement is right for you. And use our free debt reduction calculator to help you find out exactly how long it will take you to pay off your credit cards.