We all wish to become debt-free at the earliest. However, it’s easier said than done. Sometimes, your financial situation may be such that it becomes difficult to manage the loans or credit card bills, and the interest charges keep adding.
You have two choices – either risk loan default and bear the consequences or try for debt settlement with your lender. Debt settlement happens when a creditor is ready to accept a lesser amount than owed initially as full payment and agree to close the debt.
That way, you don’t have to worry about getting sued or hounded by creditors constantly. But, there are debt settlement pros and cons that you have to keep in mind.
Let’s start with the pros first.
Cut the Debt By Up to 50% and You Can Become Debt-Free Within 2-3 Years
The other alternative is bankruptcy. However, consequences of bankruptcy can follow you for life while debt settlement stays on your credit for 7-10 years. Even a bankruptcy report remains on your credit for ten years.
But, most job and credit card applications ask if you’ve ever filed bankruptcy, if you lie and it’s later found that you did, the consequences can be severe, and you may lose your job. Therefore, for debt settlement, any day is a safer alternative to filing bankruptcy.
Become Debt-Free In a Lesser Time and Lower Cost than If You Had Tried To Pay Off Your Debts on Typical Repayment Schedule
Don’t think of it as an easy escape route and pile on credit card dues. The goal isn’t to get away with paying creditors just a portion of it. It’s a solution for those who are seriously having trouble paying off your dues.
There are several debt settlement companies out there that can help you arrive at an amicable settlement with your creditors. Also, these companies can help arrange for a flexible payment arrangement too for you to pay off the agreed amount.
This can range anywhere between 2 to five years, depending on your capability. The best part being, there are no interest charges accrued, and you only pay the amount agreed upon. It will be best to understand the workings of this method after analyzing debt settlement pros and cons.
When Settling Your Debts Isn’t the Right Choice?
You will have to save money every month to settle the creditors, which may hurt your finances. You might become delinquent, fail to pay current bills, and sink further into debt. It is a vicious circle. Moreover, there is no guarantee of how long it would take to reach an agreement.
Your interest keeps racking up until the settlement is reached, which may turn out to be costly. Not to mention, debt settlement companies charge a fee too. There are no upfront charges, but most take a percentage of the debt amount settled. That’s quite a lot.
Having considered debt settlement pros and cons can be the right step for your financial health. But, it is the best option if you are struggling with multiple debts and have no means to repay it in full. You could hire a professional for a settlement so you can save some money.