Finance

Is Debt Settlement Good Or Bad

When debt becomes overwhelming, the idea of debt settlement might occur to one quite naturally. Settlement helps one in reducing his debt burden by significantly lowering the debt amount. However, there are certain pros and cons attached to it, too.

Pros of debt settlement

Alternative to bankruptcy : Debt settlement is particularly appealing to people who are at the verge of filing bankruptcy to avoid their debt liability.

  • Debt settlement is particularly appealing to people who are at the verge of filing bankruptcy to avoid their debt liability. Reduces debt amount : It can help you in satisfying your debt for far less than what you have owed originally. You may successfully save between 50 percent and 60 percent on each account.
  • It can help you in satisfying your debt for far less than what you have owed originally. You may successfully save between 50 percent and 60 percent on each account. Become debt free : You can free yourself from your debt obligation within a period of 24 to 36 months.
  • You can free yourself from your debt obligation within a period of 24 to 36 months. Help in rebuilding credit : Once you successfully settle your account, you can start rebuilding your credit.
  • Once you successfully settle your account, you can start rebuilding your credit. Settle all unsecured bills : You can settle all your unsecured bills through settlement.
  • You can settle all your unsecured bills through settlement. No further liability : Once the debt is settled, the debtor is free from all future liability of making payments toward it.
  • Once the debt is settled, the debtor is free from all future liability of making payments toward it. Help you save: Because you can lower the debt amount, you can save money through settlement.

Cons of the process

Debt settlement isn’t free from negatives, and debtors contemplating settlement should be aware of its cons in order to make an informed decision.

Put a dent on your report : The process of settlement is likely to put a dent on your credit report because you can’t negotiate a settlement with the creditor until you default on the account.

  • The process of settlement is likely to put a dent on your credit report because you can’t negotiate a settlement with the creditor until you default on the account. Negative marks would continue : Even if you have settled the account, the negative marks would continue on your credit report.
  • Even if you have settled the account, the negative marks would continue on your credit report. Limitation to unsecured loans : Settlement doesn’t work for secured loans. Hence, you can’t settle your mortgage or auto loan. Also, settlement isn’t an option for student loans.
  • Settlement doesn’t work for secured loans. Hence, you can’t settle your mortgage or auto loan. Also, settlement isn’t an option for student loans. Incur tax liability: Though settlement would reduce your debt burden, you may incur tax liability on the forgiven amount of debt.

Whether you should consider settlement depends upon your situation. If your debt situation has become extremely unwieldy so that you can no longer manage it, debt settlement can possibly be your solution. To help you out, you may also consider hiring san diego bankruptcy attorney.