Debt Settlement: Pros and Cons

Consumer CollectionsWith the current slump in the economy, many people find themselves unable to make their normal payments on their debt balances. Facing the risk of going into default on these debt balances, many people are considering debt settlement as an option. While debt settlement will allow them to negotiate paying a lower amount in order to cover their outstanding balance, the process does have its pros and cons.

There are definitely benefits to debt settlement. Having to pay less than the entire outstanding balance can save people money and improve their cash flow. Those seeking debt settlement can expect to save 40-60%, depending on which bank holds the debt. Once the debt is settled, it will mean that it is no longer eligible for legal action and the collection calls will end. Debt settlement is generally faster than other options for debt reduction as it doesn’t involve any long-term debt restructuring. Finally, debt settlement is an excellent way for those who are really struggling to avoid bankruptcy.

There are also some disadvantages to debt settlement. First of all, the person’s credit report will reflect a settled debt balance rather than a balance paid in full. This will cause a reduction in their credit rating for a period of time. Any savings from debt settlement is reported to the Internal Revenue Service as forgiven debt. This is considered income to the person and faces income taxes. Many banks will require a lump sum of cash for the negotiated settlement balance. For someone who is having a hard time making regular payments, coming up with a lump sum of cash is often not possible. Finally, there are a number of unethical debt settlement companies that exist. It is a good idea to shop them around and look for trustworthy references before choosing a company.

It is important to get something in writing from the debt holder or collector saying that the negotiated amount satisfies the entire outstanding balance. Failure to do this can allow them to sell the remaining balance to another collection agency who can then seek legal recourse.

It is important to look at the pros and cons of debt settlement before making a decision to move forward with the process. While it has its advantages, it is not for everyone. It is important to do your homework before getting started in order to achieve the most favorable outcome possible.

To get started today, call our toll free 1-877-680-6064 to speak with an associate or fill out the form below and we will contact you within 24 hours.

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