Debt Settlement: Pros and Cons
Debt settlement program successfully takes place when both the creditor and the debtor agree to settle an outstanding debt for a certain amount of money which is affordable by the debtor, usually to be paid in one lump sum. Another name of debt settlement is debt negotiation where a debt settlement representative negotiates with your creditor for debt reduction which is considered more favorable than bankruptcy. The three ways in which a debtor can settle his debts would be settling your debts yourself, hiring debt settlement lawyer or enrolling with a debt settlement company. However, a person who is considering debt settlement as an option should be aware of both its positive and negative prospects.
The process will probably lead to sure-shot reduction of debt as you will be able to negotiate with the lender an agreement which will ultimately have you free and clear of your dues and bothersome balances. In order to make it affordable for you, the lender in many cases drops down or lower the interest rate, other charges like late fee, penalties as well as the actual debt amount too at times. And in those cases the debt will be paid much easily and quickly. Debt settlement leads in this case provide full benefits to the debtors with all its services of debt reduction and ultimate elimination. The process if taken out successfully takes between 24 to 48 months depending upon the complications and obligations posed by both sides. However, the alternative is to keep paying your minimum balance for years to come. Credit card debt settlement makes it possible for you to pay off your debts to the creditors which in turn make you able to start rebuilding your credit. So, the sooner it is cleared up, the sooner you can get your credit back on track as well. In the meantime, as soon as you have made agreeable arrangements with your lenders, you may find some lenders will stop placing negative marks on your credit. Debt settlement advice and process is an excellent alternative for people who are seeking to avoid bankruptcy as bankruptcy can mar the credit rating more dangerously than any other debt relief programs. Thus collectively it puts an end to your financial stress.
On the other hand, the debtor should beware of the debt settlement companies who charge upfront fees. Ideally, you would want to look for a company that does not charge a fee until settlements are made, and will charge no more than 20 percent of which the outstanding balance has been reduced. Another flaw of debt settlement is the fact that it allows only the unsecured debts, where tax, alimony, child support, car and mortgage payments cannot be included. Also be aware of the fact that, if your lender does give you a lower amount as a pay-off, the difference is considered to be taxable income. The IRS considers forgiven debt as income, which means you will be responsible to pay tax on that amount. Moreover, in many cases the debtor has to face drop in credit rating due to the process. Thus keeping all the pros and cons in mind, a debtor has to take the final decision according to his/her financial position.
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