The name is kind of self-explanatory because debt settlement is an attempt to convince a credit company to accept a portion of what you actually owe and forgive the rest of the debt. So, instead of paying your credit card company, you’ll be making monthly payments to a debt settlement company.
The best part is, if the company feels there is enough money in your bank account, it will make a lump-sum offer to the card company that, when accepted, will settle the debt once and for all. The notion is that you could get as much as 50% of your overall debt forgiven, which is certainly tempting for any consumer. However, you should know that there are certain advantages and disadvantages to debt settlement programs that come along with some severe repercussions to your credit status, and the net result is most likely a 25% reduction or perhaps less than that.
Advantages of Debt Settlement Programs
● It significantly reduces the amount of debt you actually pay.
● It may help you dodge bankruptcy and asset liquidation.
● A well-planned debt settlement program may eliminate your debt in 2-3 years.
Disadvantages of Debt Settlement
● A debt settlement program makes you stop paying your creditors, which in return will add an amount to your overall debt because of late charges and the interest applied on it.
● Debt settlement companies can also implement a fee for each card they settle.
● Debt settlement is a big stain on your credit report that will remain there for at least seven years.
● Businesses are not obligated to accept settlement offers, and some even refuse to deal with debt settlement companies.
● Consider debt settlement a gamble. If your creditors refuse the settle, you’ll end up in an even worse financial situation.
Reasons Why You Should Consider Debt Settlement Programs
● It Turns Multiple Payments into one:
With debt solution programs, you can quickly pay your debts with lower and affordable monthly payments. Consolidating your debts into one source can make a big difference during the time of repayment. Since multiple charges just disappear, you can focus on one debt.
● Offers Low-Interest Rates:
Paying off credit card debt can be a severe headache. You can pay off multiple high-interest debts by consolidating programs at easily lower interest rates. Seems confusing? Reach out to your nearest service provider.
● It Can Help You Improve Your Credit Score:
If you really want to boost your credit score and take it even further, then consolidating your debt is the way to go. Reducing a personal loan will eventually increase your credit score in a few months.
● Ultimate Stress Buster:
Consolidating or managing all your debts into one payment can help you live a stress-free life. Moreover, it can set you free from all the hassle of the process. Debt consolidation allows you to have better control over your finances – resulting in less stress.
● Helps You Pay Off Faster:
Since the interest rates in these programs are somewhat negligible, you can pay off the debt without any complications whatsoever – something you weren’t supposed to do before. That’s the reason why debt consolidation has a shorter payback period.
And that’s everything you need to know about debt settlement programs. While they are pretty risky, to begin with, they are beneficial at the same time, especially when you have too much debt floating over your head.