What are the cons of debt settlement? It may not be as easy as you think

Date Posted: August 12, 2022
By: Maggie Marques

What are the cons of debt settlement? You may have heard a lot about the benefits of debt settlement. But did you know that there are disadvantages that you also need to be aware of? Here are some of the realities that you need to face when you choose to apply for a debt settlement.

Expensive debt settlement fees.

It may have crossed your mind that applying for a debt settlement will automatically save you money. Did you think it will lessen the amount you will pay your current creditors without taking money out of your pocket? Debt settlement companies will charge you for their hard work in settling your debt. The rates differ between agencies but prepare to shell out between $500-3,000. The fees you will pay will not be deducted from your debt but will be your payment for their services.

Negative impact on your credit score.

As you contemplate your debt settlement application, remember that this will hurt your credit score. Yes, it may not be as bad as bankruptcy, but it will most definitely influence how your future creditors’ opinion when you apply for a loan. It will also affect your employment opportunities and favorable loan terms.

Debt settlements are considered taxable income.

When asked what the cons of debt settlement are, tax implications are one. Even if your creditor agreed to your debt settlement request, you might still be taxed for it. Whatever the amount that your creditor has agreed to shave off your loan is taxable income.

Creditors may disagree with your debt settlement request.

As they say, the debtor will always be at the mercy of the creditor. Even if you have prepared a sizable amount to offer your creditors, you can’t do anything about it if they don’t buy it.

Before you try to apply for a debt settlement, make sure that you have exhausted all your other options. You have the answer to your “what are the cons of debt settlement” question, so start looking for the pros of debt settlement and weigh both options.

 

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