Debt Settlement Pros and Cons

A Brief Guide to Debt Settlement Pros and Cons

Acquiring debt is part and parcel of modern life.  After all, who could afford to buy a house, purchase a car, or pay for college with cash these days?  Unfortunately, falling into debt can put you on a slippery slope and before you know it you can be knee-deep in bills from various creditors all demanding their money “Right Now!”

With your back to the wall, life can become very uncomfortable, if not downright miserable.

If you do find yourself deep in debt you need to get good solid advice in order to become debt free and start out fresh. Therefore, it’s a good idea to understand the choices you have when trying to get out of debt and get the creditors off your back.

Two of the alternatives that many people who are deep in debt consider include bankruptcy or using a debt settlement company.  However, many consumers wonder what the debt settlement pros and cons are, especially in light of some of the bad press debt settlement programs have been getting recently.  You definitely want to sort out the advantages and disadvantages of using a debt settlement company as opposed to filing for bankruptcy.

In order to help you make the best decision we have complied the following information on debt settlement pros and cons.  It is a rundown of the process and some of the things you need to be aware of during the process of determining if debt settlement is in your best interest.  You can also go to this article to consider the ways in which filing for bankruptcy could hurt you or help your situation.

Taking Stock of Debt Settlement Pros and Cons

• To begin with, you need to familiarize yourself with your own financial standing, to see what your creditors see when they look at your financial history.  The best way to do this is to obtain a credit report.  Three companies in the United States actually tally your credit report.  These include Experian, Equifax Credit Information Services, and Trans Union.

• When you obtain your credit report you have to go through it carefully and look for anything that is not consistent with your own records.  This might include accounts that have already been paid off that are listed is still having a balance due, personal information that is inaccurate, or even credit accounts that do not belong to you. You will also find out your FICO score, which is the credit rating score that your creditors review to consider whether you are credit worthy.  An excellent credit rating would be something over 700, while an average score may be in the high 500s.

• With your credit score in hand, you can add up all of your individual balances from the various creditors.  These might include consumer loans, credit cards either with a major credit card company such as Visa, MasterCard, American Express, or an account you have with individual companies or stores, such as Sears or Best Buy. It would also include student loans, car loans, and of course a mortgage if you have one.  Some of these debts will be secured and some will be unsecured. An unsecured loan means that the debt is not attached to any collateral such as your home.

• After you have reviewed the extent of your debt, you then have to review your monthly income to determine whether you can meet your financial obligations as they stand. You are attempting to discover whether you have enough income to enter into negotiations with your creditors through a legitimate debt settlement program or if you need to file for bankruptcy.

• Obviously if you can afford to make your monthly payments by applying more than the minimal payments each month and can then pay down the balance over time and if you are disciplined enough to stick to a budget then you have more options.  The first thing you will need to do is to see if your unsecured debt is at least $7,500. Debt settlement programs typically use this amount to determine whether or not someone will qualify for services.

• When it comes to the debt settlement companies themselves it is critical that you look for legitimate debt relief programs.  You can start with companies that have been endorsed by the Better Business Bureau or have been evaluated by another consumer protection program, such as the National Foundation for Credit Counseling.

• You want to know their fees upfront and to get them in writing.  The bigger the upfront fees the more suspicious you should be as to whether the program is legitimate or not. A program that charges high upfront costs might simply take your money and then let your debt linger, since the urgency to resolve the debt on their behalf is no longer very strong. And bear in mind, a company that attempts to sell you debt settlement services by phone are prohibited by law from charging any fees before they have actually reduced or settled your debt.

• Check into the company’s background. Often you can do this by going to the state attorney general’s office in the state they are in.  You can see with if there are any records of complaints filed against the company.  In addition, the company should be able to provide records or references that show successful arbitration and reduction of debt.

• Two things you will want to find out from a company our whether or not you will continue to get harassing phone calls from collection agencies, and what the impact of debt settlement will be on your credit report and future borrowing options.

• Other potential cons of working with one of the debt settlement programs may be the possibility of lawsuits brought against you by your creditors, carrying a history of damaged credit, tax problems, and increased collection calls. Be sure you explore all the possibilities related to these problems and for good measure speak to a lawyer familiar with the tax settlement process.

Is That All There is to Debt Settlement Pros and Cons?

One additional point that’s important to bear in mind, is that debt settlement might work for you for unsecured loans, but it is unlikely to resolve problems with secured debts such as a car loan or your mortgage on your home.  The difference being that the creditor could foreclose on your property to recoup some of the money that they are owed.

Hopefully, this run down of the debt settlement  pros and cons has been helpful to you.  For more information you can take a look at the following related posts.

Please leave a comment below if there is some other information that would be helpful to you.