Debt is something that many people fall prey to. It is something that can be hard to get out of. Many people turn to debt solutions to help them get out of debt. No matter what choices we make there are good consequences as well as bad.
There are both good and bad parts to all debt solutions however that is especially true of debt settlements. While participating in a debt reduction plan is tempting there are effects that may not be good.
Negative Results
There are negatives to any choice made to get you out of debt through any debt solution program.
- Default is required. In order to have a debt settlement plan you must be defaulted on your debts proving that you are having financial difficulty. This is something that is usually intentionally done.
- Debt settlement will not protect your credit rating in any way. It will hurt your credit rating no matter what. There are two reasons for this decline; you must default on your debts causing your score to reduce. You will also see a reduction because you are increasing your debt through late fees, penalties, and interest.
- Late fees and penalties are an effect of payment default. You will negotiate an amount to pay per dollar, not a total amount due. This means that to increase the dollars owed also increases the settlement owed.
- Accounts marked “settled”. This is something that is reported to the credit bureaus. Since there is a difference between paid in full and settled it can impact you for a long time. Things are on your credit report for 7 years and it can let everyone know that you had problems paying your debt.
- It is taxable anyway. The amount of your debt that has been forgiven or reduced down to is taxable. The exception to this is if the debt amount is less than $600 dollars. Be prepared to pay taxes on this debt when the time comes.
- Negotiations take forever. During the debt settlement process you are limited by the creditor’s desires. Whenever you are working on a debt settlement it is in the best interest of the creditor to prolong the settlement in order to gain the most out of it. For each month that the settlement continues to drag on, new charges are added to your balance and that is more money that they will be getting in the settlement. This is one reason that a professional debt solutions services may be in order. They are trained to move along the creditors for the best interests of you.
- Increase in collection calls. As you have allowed your debts to default you will begin to get calls from collection agencies. The phone calls can become annoying and stressful. These calls can be avoided if you have decided to hire a company to handle your debt settlement. This company not only negotiates for you but handles all other communications as well. If you chose to work alone then you will gain a lot of nasty collection agency calls.
Do You Need It
There are times when a debt settlement is the option that you need to be looking into. Be sure to know your finances, and cautiously make sure that this is the option that you must take.
- Bankruptcy: If you are ready to file for bankruptcy a debt settlement is a better option. The negative effects on your credit score are less damaging than filing for bankruptcy. If your finances are setting you to the point of bankruptcy it is time to look into the next best option, debt settlements plan.
- Previous Programs: Have you tried previous programs like debt consolidation and they not work for you. If you are unable to afford the payments from the debt consolidation program then a debt settlement can be your only option.
- Large Savings: If you have the ability to make a settlement payment then debt settlement might be the best option. Having a large amount of money to use in the settlements can make the process move swiftly.
- Fast Relief: If you are looking to be out of debt fast this is an option for you. If you have the ability to not worry about the need of your credit score for a while then a debt settlement might be the way to go. You will be out of debt within 4 years and the ability to rebuild credit will be available at that time.
It may seem like you are in a desperate financial situation. However, before making any commitments that could damage your credit, be positive that a debt settlement is the right way to go. Choose the right settlement agency to help you along the way.