Pros and cons of debt settlement if you’re crippled by debt

Understanding the pros and cons of debt settlement is essential if you are in a bleak financial situation. In this case, 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. You can do this on your own or hire a third party. One of the options is to hire 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 total amount. Be aware that debt settlement can hurt your credit score, but it is better than filing for bankruptcy.

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.
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 must keep missing your payments. And if you do this,  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 you offer.
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. When you miss a few payments, you will be charged interest and late fees, and the creditor can file a case against you. If your creditor agrees to a debt settlement, whatever the amount chalked off might be taxable income – you will have to pay taxes on it.

Debt settlement can sometimes be messy and challenging. And that is why hiring a debt settlement company can be your best bet. But the question that remains when applying for a debt settlement is whether the pros outweigh the cons.