There’s very little joy in life when you find yourself in a constant battle with creditors that simply want you to honor your obligations. If you have let your debt situation turn sour, you undoubtedly have to be wondering where you can find the exit. Assuming you understand the harsh consequences of bankruptcy, you might want to consider debt settlement as an alternative.
You Are Not Alone
Every year, millions of Americans find themselves knee deep in debt. Every quarter of every year, the U.S. Federal Reserve takes an in depth look at consumer debt in the United States. In its report dated September 2016, the truth about credit card debt was exposed. Americans were carrying $729 billion in credit card debt as a collective body. An astounding 15% of all Americans had consumer debt in excess of $15,000, resulting in the need to use an average of 13.9% of their disposable income on monthly payments. That’s called walking the tightrope of debt.
Debt Settlement as a Solution
By the time you start missing payments and receiving calls from your creditors, you will find that debt management and/or debt consolidation are no longer viable solutions for your debt issues. In order to make those options work for you, you still need to have a good credit score and rating. Before you hit bankruptcy, which you should consider a last resort, a debt settlement process might be a viable alternative.
Debt settlement entails working through a qualified and accredited debt counselor to try to negotiate more favorable terms with your creditors, specifically, credit card companies and unsecured debt lenders. Not only will you be seeking a better interest rate and lower monthly payments, but you will also be looking for your creditors to forgive a portion of the debt.
The Pros of Debt Settlement
If your debt counselor is successful in negotiating debt forgiveness, you could see your consumer debt reduced by as much as 50%. It really depends on how effective the counselor is at presenting your current financial situation and long-term prospects. In case you are wondering, most creditors will consider debt settlement negotiations in lieu of facing the prospects of you seeking bankruptcy protection where they run the risk of getting nothing.
After getting your debt reduced, there’s a distinct possibility your advocate will be able to negotiate forgiveness of late fees and a reduction in your interest rate. With a lower interest rate, your monthly payment amount should drop enough to cut your monthly cash outlays and give you a little breathing room. It’s worth noting that while creditors may be willing to negotiate, all bets are off should you continue having payment issues.
Over the long haul, you could end up paying off your consumer debt sooner rather than later. You’ll also have the opportunity to slowly restore your credit rating. In fact, some creditors will remove derogatory remarks should you tow the line and successfully abide by your new debt agreement until your debt is paid off.
The Cons of Debt Settlement
As should be reasonably expected, there are some significant consequences related to the debt settlement process. Your are going to be responsible to pay a fee to the debt settlement company should they successfully reach an agreement with your creditors. Should you default on the new agreement, all of those give backs could be revoked, forcing you into bankruptcy or a lawsuit.
The most significant hit will be to your credit rating. By admitting you can’t honor your debt obligations, your creditors will rightfully report the delinquency to the credit reporting agencies. The initial hit to your credit score and rating will be almost as severe as a bankruptcy discharge. With that said, you could find yourself working your way out of “credit prison” in much quicker fashion with a debt settlement. As you make your adjusted payments on time, you credit score will slowly start to rise.
As you go through the debt settlement process, you will hopefully take a look at your lifestyle and how you manage your finances. With a little planning and a few adjustments in attitude, you should be able to put an end to the stress related to dealing with unmanageable debt.