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3 Pros and 2 cons of debt settlement that are worth considering

October 15, 2010 by · Leave a Comment 

If you’re overburdened with credit card debts and you can’t arrange the minimum payments on your credit cards, you might be looking for some kind of debt resolution. Out of the various debt relief options available, debt settlement can be a viable option for you as it reduces the debt amount considerably. But before settling your debts through a debt settlement company, you need to consider some pros and cons of debt settlement companies. Read on to know about them.

Pros of settling your debts through a debt settlement company

Debt settlement companies attract most debt struck consumers because of the significant reduction in the debt amount. Have a look at the pros of settling your debts with a debt settlement company.

1.You become debt free soon: By settling your debts through a debt settlement company, you can completely free yourself out of debt within 24 to 36 months. This certainly depends on the amount of debt that you owe to your creditors. As you pay off the settled amount, you can easily start with rebuilding your credit once again.

2.Pay less than you owe: Through a debt settlement company, you pay less than what you owe. Your debt consultant negotiates with your creditors and attempts to lower the principal amount to its half. The cut off amount ranges from 40-50%. Thus you save a lot of money by settling your debts.

3.Stops legal actions: As you pay off your debts owed to your creditors, no legal actions are taken against you. Generally your creditors take legal action against you if you fall behind on your payments. But since in this case, you make your payments, though not in full, the creditors stop taking legal action against you.

Cons of settling your debts through a debt settlement company

Debt settlement has got some cons which must also be considered before settling your debts so that you can safeguard yourself against such disadvantages. Have a look at some of them.

1.Your credit score is hurt: By settling your debts, you can hurt your credit score significantly. Since you do not pay the entire amount, the creditors report it as “paid as settled” and this hits your credit score badly.

2.Your savings becomes taxable: The amount that you save through a settlement is subject to tax under the IRS. Thus the money that you are going to save will be taken away in the form of taxes.

Debt settlement is the fastest and the least expensive way to get out of debt. It is a direct and ambitious approach to debt reduction and it is best suited for individuals who have no other option left but to file bankruptcy.

Author: Charles Anderson