Debt settlement: what are the pros and cons? - Insane Visions

Debt settlement: what are the pros and cons?

Are you swimming in debt? Eventually, you will start looking for a way out of your situation. Many people consider debt settlement as the only way out of their woes. However, nothing is ever that simple because debt settlement has its own drawbacks and pitfalls.

What is debt settlement?

Simply put, debt settlement is hiring a company to negotiate lower payments, on credit card payments and personal loans, with your creditors. The main goal is to negotiate a lower settlement with your lenders and creditors.

How do debt settlement companies work?

When you decide to hire debt settlement professionals, you are asking them to negotiate a settlement on your behalf. Their job will be to negotiate a much lower amount for you. In turn, you have to pay a monthly payment to the settlement company so that they can pay your creditors on your behalf.

Just remember that the company will deduct their commission from this payment. When you hire a company, they will tell you to stop any further communications with your lenders. The goal of doing this is to make the lenders desperate enough to accept any payment. When the lender agrees to debt settlement, you will owe much less money.

Pros of debt settlement

The main advantage of debt settlement is that you will have a much lower monthly payment to worry about. If your settlement offer is accepted, you will pay a much lower amount than you originally owed. In most cases, this amount will be less than 50 percent of your original debt, which will save you a lot of money in the end.

Cons of debt settlement

You should only use debt settlement if your credit is very poor. If you have good credit, this option will damage it for quite a while. What debt settlement companies fail to mention is that once you settle a debt, they will report your debt as ‘settlement accepted’ to the credit bureaus, which will damage your report for seven years.

Even when you ignore the lenders as your debt settlement company will instruct you, they will keep reporting your late payments to the credit bureaus. Moreover, while you are making payments to the debt settlement company, they will not tell you how much of this money is going towards the payment of your debts and how much they are taking as commission.

How to avoid scams

You do not want a debt settlement company to swindle you. You should perform your due diligence by doing the following:

Ask many questions – you need to know how long the company has been in business and what training the employees have had. Make sure that you go for companies that have been around for quite a while with staff members who comprehend personal finance.

Avoid companies that reach out to you – if a company is always contacting you, it might mean that they are desperate.

Read the fine print – failing to read the fine print might drive you further into debt.

Take advantage of free consultations – you should use free consultations to ask as many questions as possible. If a company is not interested in answering your questions, you need to avoid it.

Background check – a company with a proven record of accomplishment is the best choice. Check the Better Business Bureau to see what rating the company you are considering has.

Are you looking for the best debt settlement company? You can find the best programs for debt settlement online. If you do not want to take chances online, you should ask for referrals from friends and family.

Beatrice Santos
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