What Is A Debt Settlement And Should You Get One?

Debt is a natural part of anyone's financial life, and getting over debt is one of the many hurdles you may have to experience in order to fully realize financial independence. If you find yourself stuck in a debt situation, debt management might be one of the options that can save you.

However, it may also be important to study a few facts about debt first. Debt is in fact a very common occurrence in someone's financial life. For instance, according to New York Times, the average credit card debt of any household in the United States in 2017 was around $5,700 and this is partly because credit cards are very easy to acquire. Meanwhile, average student loans for public universities inside a state fall at around $20,090, which can rise to as high as $34,220 if a student is from outside the state. If you're looking into ways to help manage your debt, a debt settlement might work for you. Here are a few basic things you need to know about what is a debt settlement and if you should get one:

Debt Settlement: The Basics

When it comes to defining debt settlement, it's a process through which a creditor may more or less agree to accept getting repayments that are less than the amount you originally owe. Having debt settled means the collector/creditor also isn't allowed to continuously follow up for the money as well, and that you don't have to worry getting sued over the debt you owe them as well.

  • However, while this option sounds attractive, it's not always helpful for everyone. It's important to remember as early as now that debt settlement have chances of prolonging your debt repayment period. Sometimes, these also don't stop collection notices and late fees.
  • Remember, there's no surefire way of guaranteeing that your creditor will agree to a lower term in the first place, unless you could prove that you can't pay the original amount you agreed to. This will likely happen if you really haven't made payments properly, and if your credit score has already been extremely lowered.
  • Sometimes, in these scenarios, debt settlement companies actually negotiate with collectors on your behalf, but this also means possibly paying a hefty sum before this could be done. Debt settlement isn't something that can be applied to all sorts of debt, because federal student loans or a foreclosed house don't have debt settlement options.

The Risks of Debt Settlement

Debt settlement, as much as it's an option you can consider, also has its own risks you should consider. It's best to treat debt settlement as a last resort because of the risks it needs you to consider before taking one. The most important of these is that there's no guarantee that debt settlement can be successful, or that the settlement in the first place can be to an amount that you're fully comfortable with.

  • There's also the risk of your credit taking much more hits than before. This is because there's a possibility that debt you pay to lenders and delinquent accounts may take seven years before they're removed from your reports.
  • There's also the likely possibility of still having to pay penalty fees and late charges despite being in the debt settlement. In fact, there's also the possibility that your forgiven debt may be considered as income, so you may even have to pay taxes outside your late fees.

Conclusion

When you're looking into paying your debt, a lot of options might appear and make things confusing for you. If you're wondering how debt settlement can specifically help you in terms of your debt woes, the above may hopefully give you a heads up on what to expect if you do undertake this process. A debt settlement lawyer might be able to give you assistance on that matter as well, especially concerning the specifics.