On the surface, debt settlement seems like it is too good to be true. As a way to help control the debt that you owe, debt settlement allows you to pay off a lower amount than what is due. Through renegotiating your debt, you’re able to get out from underneath a crippling amount of money that you owe.
But debt settlement does have its drawbacks. Before you contact a debt settlement company to negotiate the money that you owe, it is important you understand exactly what debt settlement means and what it could mean for you.
What is Debt Settlement?
If you’re struggling to make payments on your debt, you’re probably looking for ways to lower what you owe. When you first hear of debt settlement services, you may be tempted to jump at the idea.
Under debt settlement, you would hire a company to negotiate with your lenders to reduce the amount of money that you owe. A debt settlement company will help reduce the overall debt so that you can make smaller payments each month and save money over time.
But debt settlement isn’t as great of an idea as it may sound. Using a debt settlement company can actually put you in a bad position.
Debt settlement companies want your lenders to be desperate for some kind of compensation towards the debt. This means they encourage you to stop making payments on your debt and stop responding to lenders when they attempt to collect money. They know that your lender will only agree to a smaller amount if they feel like they won’t get anything from you.
However, missing payments and ignoring your lenders can put you at risk of the debt going into collection. It can also cause points to fall from your credit score, which can be very difficult to bring back up.
If you’re considering debt settlement to mange your loans, you’ll want to know all the pros and cons.
Debt Settlement: Pros
Debt settlement can be beneficial for individuals who are desperate to lower their monthly payment. If you’re already missing payments and attempting to look for other options for controlling your debt, contacting a debt settlement company may be right for you.
Negotiating a smaller debt can save you a significant amount of money if done properly. Many individuals have ended up paying less than half of the original debt through negotiating properly. This can be life changing for many individuals.
Debt Settlement: Cons
If there weren’t cons to debt settlement, everyone would be rushing to negotiate a smaller loan. One of the biggest negatives about debt settlement is that you can really damage your credit score getting to an opportunity where negotiating is an option. If you can cover your minimum loan payment, you probably don’t need a debt settlement company.
Settling a debt also will appear on your credit report. The lender that you settle with will report that you’ve come to an agreement on a smaller amount and your credit score will be penalized for it. This mark will stay on your credit score for seven years.
A debt settlement company also does not protect you from collection agencies or late payments. While you are waiting for a negotiation to begin, your missed payments will continue to be reported and debt collectors will continue to call and contact you.
Many scams also present themselves as debt settlement companies. If you are considering working with a debt settlement company to get a smaller debt amount, you’ll want to do extensive research on the company.
Debt settlement isn’t for everyone, but it can be helpful for individuals truly struggling to make their minimum payments. If you believe that debt settlement is the best choice for you in getting out of your debt situation, then you will want to begin researching a reliable debt settlement company that you can work with.
Before you make a decision, be sure to do your research about debt settlement and what it truly means. Reading and understanding these pros and cons can be a great place to start.