For people who are struggling with their financial deadlines and demands, having any kind of a financial help is like a rope somebody throw you if you are drowning in an overflowing river. There is a growing concern that most of the American households are sinking under the weight of the accumulated financial obligations with no ending in the sight. Thanks to the financial crisis and higher cost of living, nowadays generations have more financial struggles unknown to previous generations. This is almost a way of living of many American millennials who are falling behind when trying to leave the parents nest. When you consider the fact that an average net worth is lower today and the cost of everyday life is much higher than before, it is completely understandable why many households are swimming with their head just a little bit above the water.
Debt settlement is one way of taking a control of your finances, especially if you have more debt than you can repay. It is a complicated process of negotiating your debt for less than it is owed. Also known as debt negotiation or credit settlement, it allows you to reduce your debt by the significant amount using the third-party companies. Third parties speak in the name of the debtor with creditors and try to find a solution both sides will agree with. Although it seems like an easy and simple way of managing your financial situation, quite a lot of financial experts agree that debt settlement can make your life harder on the long run. Understanding what lies in the process of debt settlement and reading about pros and cons of such activity can help you with decision when it comes to finding ways of dealing with growing bills and requirements.DEBT SETTLEMENT: PROS
The thought about paying less than you owe makes this process an attractive choice for getting rid of the debt. It is some kind of a debt repayment strategy that comes with benefits, which can help you eliminate an overwhelming feeling of stress and pressure, at least for a period of time you need to get yourself together.Avoiding bankruptcy
This is one of the main reasons why people choose the option of eliminating the debt by settling it with creditors. Bankruptcy sounds serious and most people are terrified of it as it is a decision that will follow them for the rest of their lives. Even if you bounce back after the declaring the bankruptcy, you may find difficult to get credit of any sort. Moreover, on many job applications you will be asked if you ever filled bankruptcy and lying about it can lead you of being found guilty for fraud or being fired from a job. Debt settlement cannot be seen in your public records so once the credit reporting time limit expires, you can leave any record of debt settlement in the past. It also helps you to avoid the negative consequences of filling for a bankruptcy.Less time for repaying debts
If you follow your current repaying schedule, there is a high chance it will take decades to repay all your debts. Moreover, you will probably be under a lot of pressure, feeling like you are trapped in the never-ending circle of bills and negative balances. Using a debt settlement will repay your debts in just a few years, usually in two to four years, which is much less time than sticking to the original debt repayment schedule.Feeling a relief after a long time
Accumulated debt also bring accumulated stress. Feeling stressful will bring you sleepless nights, frustrating mornings and everyday quarrels with your loved ones. Living under financial pressure can make you impossible to find solutions as you will be focused only on a growing minus on your account. Once you paid your settlement, you are debt free and can focus on making a next plan that will work better.DEBT SETTLEMENT: CONS
Being in a serious financial drawback is a situation where all solutions can seem enticing. Rather than jumping into something that can possibly lead to more problems and headaches, read about negative side of using debt settlement as an approach of dealing with growing debt.Impact on your credit score
Debt settlements will reduce your debt but it comes with a much higher price. It may sound great you pay a third party to settle your credit, they pay your debt to the creditors and everyone is happy in the end. While it sounds too good to be true, it actually is. While the settlement is being negotiated, you have to stop paying to your creditors. This part is crucial, as it is the reason why you can be reported to the credit bureau and your credit rating can drop.Bad credit history
Bad credit score can lead to the bad credit history as you not paying the bills on time will be a part of your public records. You can end up in a situation where you cannot get a new job or good insurance rate because everyone will perceive you negatively. You will have to try hard to reach the positive credit score once again.Ineligible for Unsecured loan
It may take up to a couple of years for you to become eligible again for unsecured loans. This type of loans is only approved to the people with good credit score while having a deb settlement in your credit history make you a potential risk for lenders.Additional fees
Remember the part where you stopped paying to the creditors because your debt was being negotiated? The arising fees coming from unpaid bills will come with higher interest and other penalties. Do not forget that debt settlement companies also charge their fees, which are between 20% and 25% of the final settlement. If your settlement is $10.000, you could owe between $2.000 and $2.500 in fees.
Being financially independent is the dream of many however, for most Americans a debt stress free life is not common. By arming yourself with the proper knowledge of various debt solutions, it may be possible to bring the dream into reality.