Many people who select a debt settlement program may have already tried credit card consolidation in an effort to resolve their financial difficulties, but may not have been satisfied with the arrangements or the amount of time it was taking to pay off what they owed. For these individuals, debt settlement may provide a faster way to eliminate their debts for the least possible amount of money, while avoiding bankruptcy court. It has quickly become one of the preferred debt remedy solutions.
The process of debt settlement or credit card debt settlement involves negotiating a lower payoff amount to resolve the outstanding debt owed to a creditor. Typically, debt settlement should be considered a course of action only for those individuals under extreme financial distress, who are having difficulty meeting even basic financial obligations.
When considering debt settlement as an option for reducing credit card debt, remember that there is no guarantee that an original creditor or even a collector will settle for less than the full amount owed. Some attorneys acting as collectors may be particularly difficult to settle with. Larger collection agencies are often easier to negotiate a reduced settlement with.
There are many reasons to try to settle your debts through debt settlement. There are also many reasons not to go this route for your debt remedy solution. To make sure you are prepared for what may come, here are some of the ?pros? and the ?cons? of credit card debt settlement. Remember that the more you know before you start this process, the better off you will be.
The ?Pros?
■You may be able to settle your credit card debts for pennies on the dollar, potentially saving you thousands of dollars in the long run.
■Your unsecured debts may be resolved within months or even a few years, freeing up your cash flow much more quickly than long-term credit card consolidation programs.
■The monthly commitment amount designed by debt settlement services is almost always significantly less than credit counseling debt management programs, and debt consolidation loan payments. This gives you much needed breathing room for household and fixed obligation expenditures.
■The credit card debt settlement process, as such, will not appear on your credit record, and your accounts will eventually be marked as "paid" or "settled." (See the ?cons? for the other side of this coin.)
■The effects of settlements on your credit rating/FICO score will drop off more quickly than a bankruptcy would (a bankruptcy discharge remains on your credit report for up to 10 years).
The ?Cons?
■While your payments are being withheld from the creditors, you may receive harassing calls from your creditors and collection agencies. The debt settlement company may request creditors to stop calling, but that does not mean they will honor those requests.
■Late fees will continue to accrue on your unpaid accounts, piling up and increasing your total amount due. Should your creditors refuse to play the game, you could find yourself in an even greater financial mess than you started with.
■It is possible that your settled debts may be noted on your credit report as ?settled? or ?settled for partial? rather than ?paid in full? which is the most desirable credit report notation.
■ Any savings off the total amount due is reportable to the Internal Revenue Service (IRS) as forgiven debt, which is considered a form of income.
It's usually better to try resolving your own financial issues before opting for a credit card debt settlement program that will likely add further damage to your credit history. There are ways to embark upon your own debt remedy solution without having to contract a professional debt service. However, every individual's financial situation is unique as are the circumstances that created the financial problems. Only you know the details of your financial dilemma and what progress is possible to achieve on your own.
Many people wake up one day and discover that over time they slowly accumulated a pile of debt and it is more debt than they can begin to repay. When this reality hits, very often a spiraling downward trend begins to build. This inability to pay back the owed debt in the end leads to additional late charges, interest charges and penalties, increasing the amount owed and making payment more difficult to repay.
One suggestion often used to break the never-ending debt problem is to use the services of a debt consolidation company. For thousands each year, this step has given them a way out of the debt pit and helped them nurse their way back to a stable financial life. However, there are both pros and cons to consolidating any kind of consumer debt, no matter what shape, method or form it takes. Walking into the financial battlefield armed with knowledge will help make the process and decisions easier when your particular financial circumstances are reviewed.
Before you go any further it is important to know exactly what "debt consolidation" is. In it's simplest form it entails taking all of your debts from all the sources, taking out a loan, paying off all the balances and then making one single payment on a single loan.
In order for any debt reduction strategy to be successful a few things need to take place. If you pay $125 + $75 + $25 to three different creditors or make one payment of $225 to one creditor you have not really saved anything. Today with the ability to pay bills online you do not even save on postage!
For any debt consolidation system to be worth the effort one or more of the following items needs to occur: (1) The total monthly payment must decrease, or, (2) the overall net amount of the combined interest must decrease, or, (3) the actual total debt must be lowered because of the consolidation. Which, if any, or all of these 3 conditions can take place depending on the type of debt reduction plan selected.
Ideally, although it rarely happens, monthly payments will decrease, interest will be lower and the total debt will be reduced. The usual scenario finds the monthly payment lowered. This does give the debt ridden several advantages. With lower payments the chance of making payments consistently and on time should increase.
This helps prevent stacking more debt with more interest and late charges onto current existing debt. One other noticeable advantage is the peace of mind and reduced stress which occurs without the constant thought of debt always on your mind. It is a relief to know you can meet your monthly obligations of servicing your debt and yet still meet your monthly needs.
After going through the process of consolidating all this debt, keep your guard up! Lower payments can sometimes lead to a relaxed feeling of having extra money to spend. Do not be fooled! Start building an emergency fund! The goal should be to head towards a life of debt free living.
Make sure you read the fine print. One of the cons with many consolidation plans is the extended length of the loan period. The added interest and time added more than covers the entire amount of the original balances prior to consolidating. It may seem unfair but you do owe the money. Take note that some creditors will take less money to settle the debt since they believe their changes of getting paid increases.
One of the best ways to approach tackling debt such as is to look at it much the same as losing weight. It starts with a commitment to consistently work toward reducing your debt. A plan and working the plan consistently will result in long-term success and a better happier life!
Both Mansi Gupta & Landon Mcgehee are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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