Debt Settlement 101
What Is Debt Settlement and How Does It Work?
Debt settlement is the process of resolving a balanced owed to a creditor or collection agency by negotiating a final payment. Debt settlement can be achieved by the borrower negotiating directly with the collection agency or hiring a third-party to negotiate on their behalf.
Why Choose Debt Settlement?
If you’re an entrepreneur and you’re looking to settle up your debts so you can move forward with your business idea, you’re not alone. You’ll be glad to know that there are plenty of debt settlement and consolidation options available. It’s important to understand what debt is by looking into our Debt 101. If you want to explore your options so you can inch your way out of debt, we urge you to explore the pros and cons of debt settlement options. Proceed with knowledge and caution as you begin your debt-free journey!
Debt Settlement Pros and Cons
The standard definition of debt settlement is when you attempt to reduce the amount of debt you have through a negotiation process set out by a third party. Initially, the lender would have to settle for less than what they originally owe so that it can be tricky. There are numerous debt settlement agencies out there, so you have to take your time when finding one. We have compiled a list of pro and cons to consider before settling with third-party assistance.
Pay Less Than You Owe – You might pay less than you owe, which can be enticing if you’re staring at a large sum of money.
It’s The Last Step Before Bankruptcy – If you want to enjoy your financial freedom without tarnishing your credit with a bankruptcy, then you a debt settlement option might work better for you.
Added Fees – To help settle your debt, these companies often recommend that you stop making payments to creditors. During the negotiation process, you’re likely to incur added penalties and late fees due to the amount you already owe.
Even More Negative Credit – The most crucial part of your credit is the history, especially positive history. Since a settlement company might ask you to stop making payments, you’ll now have a negative history. The impacts of the negative history might be long-term, making it hard for you to qualify for credit later.
Fees – Debt settlement services are not free. Usually, these companies charge a percentage based off of what you owe.
Forgiven Income Is Taxed – When your debt is settled, you might get taxed based off of that amount.
How to Settle Your Debt
Find a trustworthy debt settlement company in your life, and a representative will negotiate a settlement on your behalf. If you owe money to more than one creditor, then it is likely that the process will take a long time. The negotiator will do their best to ensure you get a smaller amount than what was initially owed while charging their own fee. It is wise to look at other options, such as debt consolidation before looking for a debt settlement service. There are plenty of debt settlement options available on the Internet; however, it should only be a last resort. Even when you feel like you are backed against a wall, there are plenty of debt recovery options.