Debt Settlement – How and When Does it Make Sense?
Debt settlement can help you to get out of the debt trap, if followed properly. Debt settlement helps you by lowering the outstanding debt amount owed by you, and therefore it becomes easier for you to pay down the debts. In case you have too many debts and if these are large, and if you are having problems in handling these, you can opt for debt settlement, as the amount you will be required to pay lowers, you may find that you may easily be able to go on making the payments as per your affordability.
What is Debt Settlement?
Debt settlement is the process in which the debt that you owe gets lowered. You can settle the debts of your own, or else you can also take the help of a debt settlement company. In case you are going to settle the debts of your own, you will be required to negotiate with the creditors, and also show proof of your lowered affordability. If the creditor senses that in reality you won’t be able to pay down the debt in full, and that you have started to miss the payments, they may agree to your settlement request.
On the other hand, if you enroll into a debt settlement program, the company is going to negotiate with your creditors on behalf of you. They ask you to start saving money so that you can afford to make the payments as per your affordability.
However, the question is if debt settlement can be helpful for one and all, and if it at all makes sense for you and the situation you are in.
When Debt Settlement Makes Sense?
Debt settlement makes sense only if you are in dire financial crisis, and if you now that this situation is going to improve within a few months time. Debt settlement helps by lowering the outstanding debt amount by a certain percentage or limit. So, you would still be required to have at least some income and savings in order to pay down the debts after settlement. In addition, not all creditors agree to settle the debts. Even if they do, not all may agree to lower the debts by quite a considerable amount. Considering the present situation of the economy, the creditors may not agree more often.
Another very important thing which is to be considered is that the creditors may agree to your settlement request, only if they see that you have started to miss the payments. This is because, if you have not yet missed any payments, the creditors consider that you still have the affordability to go on making the payments. So, even if you are having problems in making the debt payments, and if you are planning to settle your debts, you may have to check if you have missed payments on that particular debt. Now, if you are planning to miss the payments, you should know that this is going to hurt your credit.
Therefore, if you are in serious debt problem and if you have already started to miss payments, debt settlement can be one of your best options. on the other hand, if you have not yet started to miss any payments and if the main problems is with regards to the interest rate, it would be better for you to try out debt consolidation, rather than debt settlement. Debt settlement is not the only option for you. You will have to consider the problems you are having and the nuances associated with debt settlement, and then decide if debt settlement makes sense, with regards to the problems you are facing.
