Debt Settlement Pros and Cons
If you are experiencing financial hardships and struggling with your credit card debts, you may be interested in finding out how settling your debts can help, and the pros and cons of this particular debt relief option. One pro of debt settlement might be that it could help you put an end to feeling overwhelmed with credit card debts. These debts can cause stress and anxiety to take over your and your family's life. If you sometimes feel that the money you do make keeps disappearing into thin air while your debts keep adding up - take heart - there are relief options available.
For many people, debt settlement may be a viable debt relief option as it allows them the opportunity to settle, or negotiate, with creditors for a significantly reduced amount as compared with their original debt. However, debt settlement is just one of several debt relief options available to you; another option is a process known as debt consolidation, where consumers work with credit counseling agencies to combine their credit card and unsecured debts into a single, more manageable, and more structured monthly payment.
Today, many consumers have made both debt settlement and debt consolidation popular alternatives to bankruptcy, which is also a form of debt relief - but has a more devastating and longer lasting impact on personal credit.
Explore your debt relief options now. Get a free debt relief analysis and savings estimate - start here.
Understanding Debt Settlement
As mentioned previously, many consumers who are overburdened with credit card debts can find relief through debt settlement - a process where they hope to settle or negotiate with their individual creditors for significantly less than what they originally owed. If you are considering debt settlement, a few words of advice: As the term "debt settlement" implies, credit card companies are certainly not legally required to "settle" or accept your settlement proposal.
In many cases, you will be advised to stop making payments on your credit cards so you can accumulate funds, over an extended period, that you can later use to make a reasonable settlement offer (or a lump-sum offer). During this period when you are not making payments to save funds, you are, generally, defaulting on the terms of your credit card agreements. As a result, you will typically see a decline in your credit score.
However, for many, in spite of the potential risks of debt settlement (pros as well as cons) it is a popular alternative to bankruptcy - which can have a more serious and longer-lasting effect on your personal credit.
Debt Consolidation Alternative
As noted earlier, if you are overwhelmed with credit card debts as well as other types of unsecured personal debts (for example, medical bills, gas charges, or department store charges), and are still assessing the pros and cons of debt settlement, you may find relief through another process known as debt consolidation, or a debt management plan (DMP). Debt consolidation typically involves consolidating, or combining, your multiple, high-interest credit card debts into a single, more affordable monthly payment made to a credit counseling agency.
Consumers who enroll in a debt relief via a debt management plan talk to credit counselors who make an assessment of their outstanding debt obligations and income. Once they have all the financial information that they need, credit counselors typically make proposals (on your behalf) to creditors requesting a reduction of interest rates, or the waiving or elimination of any late fees and other penalties.
Creditors that agree to the proposals are entered into the debt management plan. The goal is, with a more manageable and a more affordable payment plan, you can reduce your debts sooner than if you only continued to make the minimum payment at higher interest rates.
It's important to understand that while it is the credit counseling agency's responsibility to disburse funds to creditors, it is your responsibility to make sure that you have funds available in the account set up for your monthly payment. Reputable credit counseling agencies can typically provide you with a due date (the date that they draw money from your account) that takes into consideration, for instance, when you get paid or have the funds available in the account.
The bottom line is, if you are struggling with debts, there is help available - regardless of whether you consider debt settlement or debt consolidation. It is up to you to take the next step in finding out how debt relief may be able to help you regain control of your life and get off the debt treadmill.
Explore your debt relief options today. Request a free debt relief analysis and savings estimate - start here.