Debt settlement is an option that many people suffering from high debt have considered at one time or another. The idea of settling one’s debts for a fraction of the total amount is undeniably attractive, after all. However, there are some serious pitfalls to going the debt settlement route, as well, so it is important to weigh all the pros and cons of your particular financial situation before jumping into any debt settlement or debt negotiation program.
Debt Settlement Pros and Cons
Debt settlement means taking care of your debt at a much reduced payment. Unfortunately, any debt settlement arrangement also shows up on your credit report, which can do some damage to your ability to take out new loans. In addition, debt settlement arrangements all too often carry hidden penalties and fees that can totally wipe out any financial benefits gained from the settlement arrangement in the first place. So be sure you are dealing with a scrupulous lender, and do not think that settlement is just a quick exit from a tricky maze. It carries its own costs.
If you do decide on a debt settlement plan with your lender, make sure it is a plan you can reasonably keep! This seemingly simple point is overlooked all the time. Whether it is because borrowers are afraid to ask to settle for too low an amount, or whether they are talked into a higher payment during debt negotiations, if the settlement amount is higher than what you can afford, the whole settlement will become moot in a very short time. When that happens, the delinquent loan will be referred to collections, which will further hurt your credit, and you end up doubly worse off than when you started debt negotiations.
The bottom line is to be smart about your options. Debt settlement is attractive, but carries some steep penalties in many cases. Don’t jump at an offer that seems too good to be true; it probably is.