Do you think debt settlement is a good idea?

When you have a debt, the only step you can afford to take in a hurry is to repay your installment. Everything else can wait. One of the other alternatives that have recently gained light is ‘debt settlement’. This piece will give you a real-picture of debt settlements. The matter written here does not intend to influence your decision but just make you aware of what you can expect from debt settlements.

At a glance

Long story short, if you plan to switch to debt settlement, most of your debt will be released via negotiation. The idea is, you and your creditors or debt collectors come to a conclusion where you pay them only a percentage of what you owe, and the rest is forgiven. This is why it is often called an alternative to bankruptcy. Typically, you will see debt settlements are processed in case of credit card loans, personal loans, and unsecured loans. Here’s a quick check to what your future beholds if you resort to debt settlement.

Impact on your credit ratings

Debt settlement, as the name suggests, you and your debtor settle with the dues. That is, you don’t pay the amount in full, which severely damages your credit rating. Your credit rating is your credit viability or your credit-friendliness, and the loss that your credit has to bear is certainly not friendly. Now if you ask me, what is the defined time period to restore the lost scores – ell, there have been cases that took more than seven years to be able to reapply for loans and cards.

What if it is the last resort?

If you are on the verge of bankruptcy or can’t afford to give back any of the remaining balances, then debt settlement might not be a good idea. Here’s why: Because even the best bid against a debt settlement offer will demand at least 25% of the total amount owed. So, if you are in a misconception that you can settle your debt in 1 or 2 percent of the total amount, you need to think again!

What if you want to pay off your debt ASAP?

As compared to the regular payment, debt settlement might be quicker in erasing debt. However, it is not an ultra-quick fix. You see, even with the best legal team and offers, it would take months before you can make a settlement offer and act on it.

Debt settlement over bankruptcy? Or vice versa?

An average man will always consider bankruptcy as his last option for several reasons. One because filing bankruptcy will also cost you a few of your personal assets and your credit rating can stand damaged up to 10 years or more. But at the same time, bankruptcy means you can start fresh, no backload, and a chance to rebuild your financial life. The ball is now on your court and the next move will be yours to take.

What about consolidation?

For those who are not aware of the definition of debt consolidation, let me answer it for you: it means simplifying your finances and reducing the amount of interest you have to pay for your debts and credit cards. Thus, if you wish to analyze, here’s a quick run-through: you still need to regularly pay your installments, although at lower interest rates. However, on the contrary, your credit rating will not be damaged. Now considering the pros and cons, the final decision must be yours.

What are the other alternatives?

For a matter of fact, debt settlement is not your only resort. There are still plenty of other ways by which you can pay your dues, walk out of your piling debts and live a debt-free life. My last pro-tip will be to familiarize yourself with your finances, save as much and as little as you can and follow a debt payment plan.    

Kavita Paliwal

  Kavita is an Outreach Specialist cum Content writer. When not glued to her laptop, she can be found making travel plans that rarely happen :wink: Connect with Kavita on Twitter @dreamerkavita

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