The most popular solutions to the problem of heavy debt burden is to get a
debt settlement or file for bankruptcy. Among these two debt settlement is
preferred as it has a relatively less impact on credit report. In this article
we assess the benefits and drawbacks of debt settlement.
Debt settlement is a process in which an organization will go to your lenders
and negotiate with them regarding your debt. The purpose of the whole exercise
is to reduce your debt burden. If a settlement company is good it can get your
debt reduced by as much as 50%. This is what a creditor needs and this is
the most visible benefit of debt settlement. The amount of the debt is reduced,
the repayment plan is made easy and often the monthly installments are spread
over a long period. This makes life a lot more easier for the borrower.
However, debt settlement is not without its drawbacks. There are two things
to worry about. First, is the cost of debt settlement. Debt settlement companies
will charge huge amounts for their services. The usual range is between 10-15%
of the debt amount. Paying this much amount upfront can turn your financial
situation from bad to worse.
The second problem caused by debt settlement is the damage done to your
credit report. The very fact that you are going for a debt settlement will show
negatively on your report. But, it is still better than filing for bankruptcy, which will make a bigger dent in your financial credibility.
The whole process of debt settlement becomes meaningless if you don't change your financial habits for good. With all the drawbacks, debt settlement still
provides a chance to get your finances back on track and should be used for it.