Crippled by debt? Here’s the Pros and Cons of How Debt Settlement Work

Date Posted: January 18, 2022
By: Magnolia Yrasuegui

If you are like many who are drowning in the sea of debt with no hope in sight, debt settlement may be a solution you could explore. How does debt settlement work? What are the pros and cons? Is this the better option for you?

Debt settlement allows you to clear up your outstanding debt without paying the total amount. Debt settlement needs a lot of negotiating with your lender, and you can choose to do this on your own or hire a third party, an Attorney or a debt settlement company, to do this for you. It may sound good that you will be “cleared” of your debts without paying the full amount, but in reality, debt settlement can hurt your credit score. But debt settlement is better than filing for bankruptcy.

So here are some of the pros and cons of debt settlement:

Advantages:

1. You have reduced the debt amount. By taking out a debt settlement, or debt relief, you significantly lower the overall amount of your debts. You will have a better grasp of the money you still owe, and you will be able to manage to repay.

2. Debt settlement can help you steer away from filing for bankruptcy.

3. One of the most significant benefits of applying for a debt settlement is having credit collectors stop calling you.

Disadvantages:

1. Negative impact on your credit score. To apply for debt settlement, you will need to keep missing your payments, and your account should be considered delinquent on your credit reports.

2. Your creditor may not agree to settle. You will still be at the mercy of your creditor, and there is still a chance that they will not agree to the terms that you are offering.

3. You could even be deeper in debt. Think about it, for you to qualify for a debt settlement, you need to miss a few payments. Missing a few payments means you will be charged with interest and late fees, and the creditor can file a case against you. If your creditor agrees to a debt settlement, whatever the amount that has been chalked off might be taxable income – you will have to pay taxes on it.

Debt settlement can sometimes be messy and challenging. That is why hiring a debt settlement company can be your best bet. But the question remains when it comes to applying for a debt settlement, will the pros outweigh the cons?

 

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