Debt settlement is an attractive option because it can help you to reduce the total amount of your debt significantly. You only pay the amount you can afford for the fund settlements. In debt settlement, you will be required to make a monthly deposit to a deposit account. The monthly deposit will depend on how much you can pay back. Before you enroll in a debt settlement plan, make sure you understand how it works. The following are the pros an cons of a debt settlement.
Advantages of Debt Settlements
1. Be Free from Your Debt
The advantage of debt settlement is that you can be free from debt in a much shorter time. Once you are set free from your debt, you will no longer be pursued by the debt collection agency. The settled debt will not be subjected to any legal action.
2. Supports Various Types of Unsecured Bills
You can include all kinds of unsecured bills in your debt settlement. Medical bills can also be included. In order to be qualified for inclusion in the debt settlement, you must make sure the debt amount is more than $1,000.
3. Reduce Your Debt
Debt settlement companies can help you to reduce your debt by up to 50-60%. This will help you to save a lot of money in paying back the debt in long term. You will find yourself having more cash to spend on other expenses that are priorities in your life.
4. Re-aging Your Account
Some creditors can help you to boost your credit scores by re-aging your accounts. This is a common practice when your credit report is not in good standing.
Disadvantages of Debt Settlements
1. Need to Come Up with Large Sum of Funds
One downside of debt settlement is that you need to come up with the money to pay the settlement amount every month. This can be difficult for people who are coping with financial problems.
2. Affect Your Credit Profile
Debt settlement services can have a negative impact on the credit profile. Since you settle the debt for a partial amount, it will be noted as “settled” instead of “paid in full” on your account. The information will remain on your credit report for up to 7 years.
3. Increase in Collection Activities and Debt Balance
When you stop making payment for a while, you may start to receive more collection activities calls. Your debt balance may also increase due to the pilling of late interest fees during the negotiation of the settlement.
In conclusion, the advantages of debt settlement far surpassed its disadvantages. If your debt circumstances has gone out of your control, debt settlement could be the solution for you. You have to be careful with the company you deal with as there are lots of scams around.