Debt Settlement Pros and Cons

Debt Settlement is the process of negotiating your debt down to a lower payment. You usually go through a company that specializes in Debt Settlement, and they will actually be the ones that will work with your creditors. Depending on you situation, they can cut what you owe in half. Some situations can be more or less than that, less the fee that the Debt Settlement company will charge. Debt Settlement is pretty much the option that you would choose right before filing for bankruptcy.

Pros of Debt Settlement:

Avoid harassing phone calls - When working with a Debt Settlement company, they will send a cease and desist letter to all of your creditors. They will no longer be able to contact you about your debt and will instead have to contact your debt settlement company.

Single Payment - With Debt Settlement you end up paying your settlement company a single payment and they pay your creditors when a negotiation is met. This makes it easier for you to manage your other bills such as phone bills, electric bills, etc.

Bankruptcy Alternative - Bankruptcy is a scaring thing to have to go through. With Debt Settlement, you can avoid bankruptcy by settling your debt outside of the courts.

Pay less - With Debt Settlement, you usually end up paying less in the end. This is because your debt settlement company is going to negotiate your debt down by as much as 50%. Remember though that this percentage could be less depending on your unique situation.

Cons of Debt Settlement:

Not the same as paid in full - Sometimes when you settle your debt, it could show up on your credit report as settled debt instead of paid in full. This is of course up to your creditors and is less favorable than paid in full of course.

Taxes - When you settle your debt, the IRS looks at this as forgiven debt and is subject to taxes.

Affects Credit Rating - Debt Settlement will most likely have a negative effect on your credit rating. It most likely won't be as bad as Bankruptcy, however it isn't going to be great. Please review Debt Consolidation Pros and Cons for an alternative to Debt Settlement.

Takes time - Debt Settlement can take years to complete.