It needs no mention that the most controversial debt reduction strategy is debt settlement. If you have accumulated a large number of unpaid credit card bills and are looking for some kind of effective debt solution, here’s help. Other than following a frugal budget, spending less and saving money, you can also get help from the professional debt relief companies.
Debt settlement is a great option when it comes to reducing the principal amount that you owe your multiple creditors. However, most often you will see companies making grandiose promises about reducing 50-60% of the debt burden. Don’t you think it sounds too good to be true? Well, if you’re confused about whether or not debt settlement offers real help or is a scam, read on. Let us analyze the various pros and cons of this debt relief option.
Debt Settlement Pros:
What attracts most people towards the debt settlement companies is the drastic reduction of the principal balance. Wouldn’t you want to pay back an amount that is much less than what you owed to your creditors? Have a look at the multiple pros of debt settlement:
- Debt free within 24 to 36 months: Debt settlement will help you become debt free within a short span of time. Usually the stipulated period is around 24-36 months but it may take longer if you have overwhelmingly large amount of debt. As soon as you become debt free, you can start rebuilding your credit once again.
- Reduce your principal balance: Unlike any other debt relief option, you can easily reduce your principal balance to its half. You can massively benefit as you don’t have to repay the staggeringly high amount of debt that you owe the credit card companies.
- Single affordable monthly payments: As you agree with your creditors on the settled amount, you have to start making single monthly payments to the debt settlement company. This money will be disbursed off to your creditors in due course of time.
- Re-ages your accounts: If you can properly negotiate with your creditors, you can even re-age your accounts and bring them back to a current status. This will inevitably help you boost your credit score.
Debt Settlement Cons:
As you know that there’s no such really easy way to release yourself of debt, there’s always a cost that you have to incur for dealing with a third-party. Now that you’re already exposed to the pros of debt settlement, have a look at the cons.
- It may hit you hard on your score: As you’re not paying back the entire amount that you owed this will be reported to the credit bureaus. The creditors will consider this as “paid as settled” and not as “paid in full”. You can again negotiate with your creditors in order to report your payment schedule in the according way so that it does not hit your score.
- You’ll owe tax on the saved money: Though you think that you will save a huge amount of money by repaying a lesser amount, the actual fact is that you will owe tax. The IRS will charge tax on any kind of forgiven debt amount and therefore it is not that you will save the entire amount of money that is forgiven by your creditors.
Is debt settlement the right option for you? Consider your repayment ability, financial affordability and also your credit score before taking resort to this option. If you feel that your debt situation has become too unwieldy and you can’t handle to pay off your debts through your budgeting efforts, get help from a debt settlement program to avoid filing bankruptcy.
Warning: Do Not Fall In The Trap Of Non-Genuine Debt Management Companies
Given below are a few ways in which non-genuine debt management companies try to trick people:
- They provide an assurance of total payoffs or precise payments in 1-2 years. There are many situations when settlements and policies may change on the behalf of the creditor, like merger of banks or change in interest rates. So, be sure too brush off any such assurances as no one knows what future has in store.
- Affiliations with Chamber of Commerce or Dunn and Bradstreet are usually used by companies to vouch for their credibility. However, the truth is, to know the real credibility of a debt relief company, it should be included in Better Business Bureau (BBB) listing and maintain a good record.
- Some companies charge a flat commission from you according to the amount of your debt. It is better to be wary of such companies as no genuine companies do this. Reputed debt management companies charge a certain percentage of the amount they help you save, as their fee.
- Companies that advice to sign up for loans in order to consolidate your debts are sure to make you repay your complete debt and that too with the same interest rate at which you were paying it earlier, proving to be of no help, instead dupe you off their commission amount.
- Claiming that debt consolidation will not show on the credit report is another tactic used by non-genuine debt relief companies. In the end, this affects you a lot more than the usual debt settlement.
Having known the intricacies of the finance industry since years, our team took the challenge of reviewing several debt management companies that claim to get people out of their credit crunch. Working on it aggressively since the past two years, we present to you with reliable industry names that have the knowledge and resources to offer you necessary assistance in a dire financial situation.
For any of you who are stuck with a personal loan, credit card loan or any debt for a small business, these companies are sure to guide you towards a brighter side. Our recommendations are primary based on the following factors:
- Reputation of the company
- Our interaction with past clients and company staff
- Credentials of the company
- Written guarantee for estimated savings
- Work with most creditors, especially the ones that are not easy to deal with, like Citibank
- Membership with BBB for a minimum of 5 years
- Assistance in maintaining your credit standing