Debt Settlement Pros and Cons - Why Debt Settlement Doesn't Always Make Financial Sense

18 Apr

Debt settlement is basically a negotiation done with the creditor of a borrower. Commonly, debtors agree to settle for a partial waiver of the debt: maybe around 50%, although results can vary so much. Once negotiations are finished, both parties are put in writing the agreed terms. The debtors' payment to the creditors is then arranged accordingly. Debt settlement can be of several advantages over bankruptcy. Filing for bankruptcy will have long term negative effects on credit history, so it is not a viable solution when faced with serious debts. The pros of debt settlement are better than the pros of bankruptcy because it does not have long term negative effects. Another advantage is that your credit score may be hurt during this period. But the damage may be repaired quickly as soon as you resume paying regular installments on your mortgage or other sources of loans. The cons of debt settlement are very obvious. If you owe more than seven hundred dollars and if you have been getting calls from your third-party lenders, you must hire a Debt Settlement company. A professional will be appointed to negotiate with your third-party lender and reach a favorable settlement deal. The debt settled through a settlement firm will include all the fees associated with it such as credit card counseling, payment consolidation, and a reduction in the total outstanding balance. However, the fees need not be paid until the debt is settled. Usually, a firm charges about one percent of the balance amount as fees. Some Debt Settlement pros advise people not to pay the fees up-front. They feel it is an abuse of the system since the fees are to be paid only after the deal has been finalized and the debts have been settled. Another reason for not paying upfront fees is that you do not know how much the settlement company will settle your debts for. Most firms give only a percentage of the total amount. The bottom line is that the settlement agency is making money from you even while you are paying the agency. You can reduce the number of third-party payments you make to your settlement companies by undertaking to make regular payments yourself. For instance, you can stop paying your credit cards to the credit card companies that are providing the services. Instead, you can transfer the balances from these cards to a single account which you will maintain open a monthly. These efforts will reduce the number of third-party payments you make. Check this out:

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