Debt settlement is a great way to get out of your credit problems. There are many benefits to a debt settlement plan but it is not always true for everyone. If you do not qualify for it, this will not work too well for you. With any debt relief program, you have to qualify for it first. That is the only way that you can enjoy the full benefits of your chosen debt solution.
The main appeal of settling your debts is because of the debt reduction that this program promises. You will basically negotiate with your creditor to allow you to pay only a portion of what you owe. However, it has some serious credit implications. To make your creditor agree to reduce your debts, you have to intentionally default on your payments. That is the best way to prove that you are in a financial crisis.
To help you decide if the cons are worth it because of the pros, here are 10 questions that you need to ask yourself.
5 questions before deciding to settle your debts
When you are still deciding if you want to use debt settlement, here are 5 questions to ask yourself first.
What type of debts do you have?
This type of debt solution can only work for certain type of debts. If you have mostly secured loans, then debt settlement will not be able to do much for you. Once you start defaulting on your payments, the creditor will simply seize the collateral that is on the line in your loan. You can only enroll the following debts in this program: credit card debt, personal loans, medical bills, utility bills and other unsecured loans.
Are you in a real financial crisis?
Some people just want to escape the responsibility of paying off what they owe. Unless you are in a real financial crisis, you should not go for debt settlement. If your creditors find out that you have all the capabilities to pay your dues, they will not agree to settle with. You will not get the debt reduction that you wanted.
Do you need a good credit score?
One of the disadvantages of debt settlement is its effect on your credit score. If you have future financial plans that will require a loan, you need to keep your credit report from getting any blemish. The payment defaults that you will be required to do before settling your debts will seriously ruin your score. Not only that, the late payment penalties will add to your debt amount – which will bring your score even lower.
Is bankruptcy the only other option?
Despite all your answers to the questions we discussed, it is important to realize one thing: is bankruptcy your only other option apart from debt settlement? If it is, you should just accept all the disadvantages and use this program to avoid bankruptcy. The negative effects of being bankrupt is much much worse.
Is there no other way to increase your disposable income?
Some people will work hard to grow their income so they can opt for other debt relief programs. That is one way that they can avoid the effects of debt settlement and bankruptcy. However, there are instances wherein getting more money is not possible. If this is your case, then you may be better off with choosing debt settlement.
5 more questions to ask if you think settling debts is the right solution
Once you have decided that debt settlement is the right option for you, there are still 5 more questions that you have to ask yourself. Knowing the answers will help you solidify the benefits that you will get from this debt relief program.
Do you need professional help?
Debt settlement is one of the options that you can do on your own or with a professional. If you think that you can be easily intimidated and you cannot negotiate with your creditors, then looking for a debt settlement company will be the better choice. But if you want to save on the service fee, make sure that you study what you have to do.
Have you done your research?
With all type of debt relief programs, you must do your research to understand what you need to do. This is true even for those who decided to get professional help. Among the things that you need to research on includes the laws on the TSR (Telemarketing Sales Rule) or FDCPA (Fair Debt Collection Practices Act). You can find out more about them through the Federal Trade Commission (FTC) website.
Do you know how to negotiate?
In case you have decided to do your own debt settlement, you have to know how to negotiate. Understand the FDCPA to know what the creditor/collector is allowed to do. Some of them will threaten you with lies just to get you to pay your dues. If you are not careful, you may be tricked into paying more than what you need to. You should not be easily intimidated and you should not how to lay your cards on the table at the right moment.
Can you handle debt collection calls?
Remember the requirement with debt settlement that you need to default on your payments intentionally? That will bombard you with collection calls that can add to the debt stress that you are already feeling. Try not to be too emotional about it and keep your cool. If you know the FDCPA, you will know when they are bluffing or not.
Where will you get the settlement fund?
If you really want to be free from debt immediately, you may want to be ready with the settlement fund that you will offer your creditors. If not, you have to make everyone wait until you have saved up enough money for the lump sum payment that you will make.
Consider the answers to these questions carefully before you really finalize your decision to use debt settlement. While it can effectively get you out of debt, take note of the repercussions that its process will bring your financial situation.