The advantages and disadvantages of debt settlement
Debt Settlement is one of the couple workable systems available to people stuck in credit card debt. However just as with anything else there are pros and cons when regarding settling your debts.
First let us unveil the cons.
1. In most cases your credit score will go down. No credit card company will be willing to make a negotiation until you have fallen at least 2 to 3 months behind. So when you are past due your credit report will take a negative hit. However the bad strikes from debt settlement are able to be corrected, a legitimate credit corrections company can get those negatives removed.
2. The harassment you will get when falling behind. As you can see you will get phone calls in an attempt to collect the debt. Depending on what establishment you use for credit card debt reduction, collection calls can be greatly reduced if not stopped. But you will receive collection activity to some degree.
3. There are the potential for lawsuits. Lawsuits are always a possibility, while it does not occur anywhere near as much as one might think it does happen. Again with a reputable organization this process can be deferred so a deal outside of court can be reached. When you are being sued the collector filing for suit usually is aware that they will not collect the full balance and the creditor is usually very willing to make a settlement.
Now for the pro's.
1. The large amount of savings! You can honestly look to save between 40-50% of the amount of debt you owe. Not only will you save money off of your current balance, but you must take into consideration the amount of income you would be throwing away through minimum payments and high interest.
2. Get out of debt quickly. Of all the debt relief avenues, settlement will put you on the fasted path to becoming debt free. You can be looking to get out of debt within 2 years or less. This is a long shot away from how long it would take to be out of debt through monthly minimum payments.
I personally feel the pros do heavily outweigh the con's. Nothing is worse than losing hundreds if not thousands of dollars every month for what will be decades through minimum payments and high interest. Debt with credit cards is cancer to your finances. How in the world can you save or invest for the future when you are just trying to get by each month to stay current with your credit card.
Steve Bis is a debt analyst and research assistant with the US Consumer Advocate, which primarily practices in credit card debt settlement.
Published December 5th, 2007
