Pros and Cons of Debt Settlement
Excessive debt is suffocating; like a dark cloud in cartoons, debt hangs gloomily over your head and affects nearly every aspect of your life. Anytime you think the situation is under control, another bill arrives; like always, due to late fees, it’s double the amount you were anticipating.
You know you have to get your finances under control, but don’t know where to start.
Take a deep breath and relax. While the opposite may seem true, you do have plenty of options. You’re not alone: in recent years, millions of indebted Americans have been turning to debt counselors. Some people choose to consolidate their debt, others choose bankruptcy, but more and more people are turning to debt settlement.
Pros to Entering into a Debt Settlement Agreement A good portion of your debt will be forgiven Why is debt settlement the financial arrangement
du’jour? For starters, debt settlement companies are experts at getting clients’ debts forgiven; on average, borrowers usually end up paying only 50% to 60% of what they originally owed—an attractive aspect, indeed.
Incessant harassing phone calls will end One of the most stressful parts about being in debt is the constant nagging from collection agencies. All that stops when you enter into a settlement agreement because legal action can no longer be taken against your debt. For some, the cessation of creditors’ calls, in it of itself, far outweighs any debt settlement drawbacks.
Cons to Debt Settlement Arrangements The Tax Man will always find you
Don’t put on the rose-colored, debt-settlement glasses quite yet; after all, it’s not a cure-all for all your financial woes. While the benefits of debt settlements are considerable, so are the handicaps. For example: a debt settler may be able to negotiate your bill down to 50%, but the 50% you were forgiven is considered income that you’ll have to pay taxes on.
It could take years Every debt settlement company works differently. A common practice, though, is to have clients pay into their own account at the debt settlement company. When your account reaches a certain amount, that’s when creditors begin to get paid. In other words, you may be faithfully paying your monthly bill to the debt settlement company, but they may not actually start paying off your debt for years; Moreover, borrowers should figure out exactly how much they’re paying the debt settlement company as opposed to their actual creditors. If the number is skewed in favor of the settlement company, that’s reason for concern.
If you’re debt is mounting and shows no sign of stopping, debt settlement can be a financial lifesaver. Just be sure you weigh all the pros and cons; if you can, consult a qualified financial planning specialist; but most importantly, identify and cure the root cause of your excessive debt. You can enter into as many debt settlements as you like, but if you have a problem with overspending, your situation may never be rectified. Remember, there’s debt counseling help all around, all you have to do is reach out and start getting the help you need.
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