The Advantages And Disadvantages Of Debt Settlement
If you’ve been making all your purchases with your plastic, it is pretty natural that you’ll be in debt as you couldn’t manage the multiple payments to all the credit card companies. The creditors love to charge you outrageously high fees for a payment that is even late by a day or two and this is the reason why most debtors rush to debt settlement companies for help. Experts say that debt settlement has advantages and disadvantages and it depends on a debtor how he uses this debt relief option to work in his favor. Have a look at some debt settlement advantages and disadvantages that you should consider before taking the plunge.
The advantages of settling your debt
Debt settlement is said to be the best option for those who have no other option but to file bankruptcy. Have a look at some benefits that you may reap while settling your debts.
- Forgiven balance: When you approach a debt settlement company, the debt consultant will try his best to negotiate with the creditors and lower the outstanding principal balance so that repayment becomes easier for you. A portion of your balance will be waived off when you show that you’re financially unable to repay the debts according to the agreement.
- Single monthly payment: The remaining balance that you have to pay back to the creditor can be either repaid through a lump sum amount of through single monthly payments. Instead of having to make multiple payments to multiple creditors, you can just concentrate on a single payment in a month.
- You become debt free sooner: The sooner you can repay your debts, the sooner you become debt free through this particular debt relief option. Try and manage your payments so that you can repay the remaining amount on time and thereby get out of debt sooner.
The disadvantages of settling your debt
Apart from the advantages of debt settlement, there are disadvantages too. Have a look at them so that you can weigh your decision about settling your debts.
- Forgiven debt subject to tax: The debt amount that will be forgiven by the creditor is considered as the income and therefore you have to pay tax on that saved amount. Though you’re not paying the amount immediately, yet you’re not entirely saving that amount of money too.
- Impact on your credit score: As you’re not repaying the debt amount as agreed with your creditor and as a part of the debt is not even being repaid, this will be reported to the credit bureaus and this will also hurt your credit score and thereby make you unworthy of getting new lines of credit.
Thus, whenever you feel that bankruptcy is the only option that you have to take resort to, you’re probably mistaken. Avoid the hassles and the shame of being called a bankrupt by opting for debt settlement and living a debt free life.
Thanks for the information provided. Still, I think that a debt settlement is a perfect option for those who have no other way out but to file for bankruptcy. I think that it’s better to do everything you can to avoid bankruptcy. Living in debt is awful and debt settlement is a good opportunity to become debt free. However, if you’re facing such debt problems, it’s necessary to re-consider your financial behavior. Try to limit usage of credit cards and online payday loans no fax and try to live within your means more. Even due certain disadvantages, debt settlement is the right option for many borrowers.