The Pros and Cons of Debt Settlement

Debt settlement has become popular in the last few years for people looking to reduce or eliminate their debt. Most of us have read all the success stories and the horror stories posted on the net. It can be a very confusing process. You may be asking yourself if debt settlement is the right option for you.

The truth of the matter is that it depends on the individual. It can be a great option for those really struggling, and not the best avenue for others who have a smaller debt amount.

Let's explore the Pros and Cons of debt settlement.

Pros
-Faster results: Once you settle, your debt is paid off. It doesn't happen the next day, but you are not facing years of repayment.
-Debt paid off: Again, once you settle, the debt is gone. It is up to you to stop using your credit cards
-Lower debt amount: Most reputable banks will settle from somewhere between 40-60 percent lower than the original balance
-Avoid bankruptcy: If you are extremely behind on your payments, this can be a viable alternative to bankruptcy
-You don't need a lawyer: Some companies are located within law offices and others may purposely resemble a law office to look more professional, but you do not require a lawyer.

Cons
-You must be behind or have stopped making payments. Otherwise, there is no incentive for a bank to settle.
-Many bogus companies: The market is full of pretenders. Many faulty organizations hide pertinent information from the consumer or charge exuberant fees. It is always a good idea to research any company you plan on doing business with. Are they listed with the BBB? Do they have a satisfactory rating?
-Taxed on savings: If you owe $14,000 in credit card debt and settle for $7,000, the federal government requires you to pay taxes on the 7K you saved.
-Some companies may require a lump sum. If this occurs, you may need to save up before you decide to settle. It's a good idea to have a separate savings account that you do not access until you have saved up the amount needed.
-Your credit will be affected. After you settle, your credit report will indicate that you have settled your debt. However, your score will go down. But a good credit score is an illusion when you are buried in debt.
-Calls from creditors: Debt settlement will eliminate some of these calls, but you will still get them. They can be annoying and come at the worst times.
-Not for everyone - Debt settlement is stressful and requires you to re-arrange your life habits. If you are not comfortable with any of the cons, debt settlement may not be for you.

So there it is. The pros and cons of debt settlement. I hope this information has been helpful.