Debt settlement, which is also known as debt negotiation or credit settlement can be seen as an approach to reduce your debt.
We more than often hear the words debt settlement when it comes to money matters.
But what is debt settlement & how does it work?
It is a process in which the debtor and the creditor come to an agreement on a reduced balance / amount that will be regarded as payment in full. You will have an opportunity to clear your debt much quicker, than you would have if you were paying it off. One of the most successful companies known for debt settlement is DebtBusters.
When it comes to the point where you want to get rid of all your debt, the question you should ask is:
Is debt settlement the option for you?
On the surface debt settlement sounds like an easy process – you pay the debt settlement company and they then pay your creditors. In the end everyone gets paid. It can be seen as an alternative to bankruptcy, so the big thing to remember is to look at all your options before deciding on debt settlement.
Like for example, if you are in a situation where you are maybe one or two months behind with payments, you can always first look at a debt management plan as an option, instead of directly turning to debt settlement.
There is of course one big advantage to debt settlement:
- You will have a much lower, single monthly payment, one which you will be able to afford.
- And since you will have fewer creditors to pay every month, you will now have money available to make payments with and to start creating a budget – to avoid debt in the future.
But before you get too excited, there are a few disadvantages also:
- Debt settlement companies can often charge high and expensive fees.
- Making use of debt settlement can have a negative impact on your credit score.
- You could owe taxes on the settled debt.
Now that you know some of the advantages and disadvantages, it is also important to keep the following things in mind when you are considering debt settlement:
- Always ask questions.
- Make sure you read and understand the fine print in the documents, before you sign anything.
- Try to avoid settlement companies that contact you first – it should be the other way around.
Keep all these things in mind when you are considering debt settlement and make sure that you consider all other options.