You have a significant amount of debt and for whatever reason you are not making progress in paying it down or are unable to make consistent payments. While often seen as a last resort before bankruptcy to remedy a poor financial situation, debt settlement may allow you to address that debt that seems to hang over your head.
Debt settlement is the process of approaching the creditor that holds your debt and agreeing on a reduced balance that will be considered as the full amount when paid. It is a popular middle option for people who are not in a position to declare bankruptcy but still need some relief from insurmountable debt payments.
While it is correct that it may harm your credit and you may end up paying excessive fees throughout the course of repayment, here are 4 reasons why the debt consolidation process may be right for you.
1. Debt relief
The obvious reason that the debt settlement process may be beneficial for you is that it can provide noticeable relief to your dire financial situation. If you continue to miss payments, your credit score will decline, the debt will never get repaid, and interest and late payment fees will add to your stress. Debt settlement processes can eliminate up to 50% of the original debt if the creditor accepts your proposal.
This will allow you to free up money to put towards other financial responsibilities. Find a debt counselling service that does not charge excessive fees either up-front or per debt repayment. This will either plunge you into more debt or prevent a large portion of your payments from going against the principal of the debt.
2. Avoid bankruptcy
If you are in a position where you are unable to repay your debts, the debt settlement process may allow you to avoid filing for bankruptcy. Bankruptcy means that your debts are eliminated in exchange for some of your assets. Bankruptcy is seriously damaging to your credit record as it remains for 10 years and you are required to disclose it on future loan and job applications.
Debt settlement will stay on your record for 7 years, meaning a shorter amount of time you need to wait to build your credit score again. There will be no public record of you settling debts after this 7-year time period.
3. Repay in less time
If you are able to make significant debt payments you may be able to repay it in full in a few years. However, it will take you a while if you are only making minimum payments and obviously not at all if you make no payments. If you are having difficulties making consistent payments towards your debt, the debt repayment process will allow you to eliminate your debt in approximately two to four years. This is significantly less time than it would take you if you paid back the debt the traditional way.
4. Gives you a plan
Debt settlement will give you an efficient plan to pay back your debts. When you initiate the process, you meet with a debt counsellor who can evaluate your financial situation, determine what you can afford, and negotiate with creditors on your behalf based on the information given.
While a creditor is not obligated to work with a debt counsellor and accept the proposal, they usually have better luck in negotiating with them than if you undertook this task yourself. A debt counsellor is also capable of advising you on ways to cut your monthly costs and your spending habits so you do not experience continued financial difficulties.