Debt settlement solutions: Watch out for the pros and cons?
If you have difficulty paying up a huge debt and have absolutely falling financial
support you can seek a debt settlement solution like many individuals do. This may allow you to settle your debt for less than what you owe and if you or your debt negotiator can negotiate well with the creditor, you can also get late payments or other defaulted payments removed from your report. It may sound good but like all other things, this too has its own pros and cons.
Let us take a look at the advantages and disadvantages of opting for a debt settlement program.
Advantages of a debt settlement plan:
1.Lower your payments: Debt settlement plans are attractive mostly because they reduce your debts to almost half of what you originally owed. A good negotiator can really reduce your payment to almost 40% - 60% of your outstanding balance.
2.Debt settled in a short time span: These plans allow your debts to be settled quickly within a short span of time.
3.Doesn't impact score like Chapter 7 does: A lot of you may choose Bankruptcy Chapter 7 over debt settlement, but debt settlement plans have a better impact on your report than a Chapter 7 does. It does not affect your score as much as Chapter 7 would do.
Disadvantages of debt settlement plan:
1.Negative effect on credit report: Your report will show this debt as settled' rather than paid'. Hence it will not have a very good impact on your score. Creditors will be able to see this report and you may be refused further credit by other creditors.
2.Required to have a lump sum: You will be needed to pay up a lump sum and hence you must be ready with the amount each time you need to pay.
3.Taxes: When a lender forgives a debt or a portion of the debt in a debt settlement negotiation, that amount becomes taxable for you and the tax goes to the IRS as income.
4.Creditors keep calling: You will continue to receive calls from creditors asking you to pay up the money. This will happen for another 2-3 months.
5.Accounts in collection: Your account could go to collection even after debt settlement. Unless you have it in writing you will have no proof of having settled it off. Once you have settled an account with a creditor, make sure you have it in writing that no further collection attempts can be made on this account.
6.Fear of getting sued: If after settlement you do not have a written agreement with your creditor to stop further collection attempts, you could also get sued for this same account. There would then be a judgment against you and that means extra trouble.
7.Upfront fees: There are several scam companies that ask you o pay an upfront fee to provide debt settlement solutions. But after they take the money they cease any kind of contact with you and do not even provide you the service that they promised earlier. It is quite difficult to identify such companies, which is why a lot of individuals had to suffer.
Debt settlement solutions: Watch out for the pros and cons?