People do not plan to go into debt. Once they find that they owe more money than they can realistically afford to repay, they will need to make a plan to eliminate these debts. They have several options, and some will be better for some people than for others. Just one of the options people have for debt relief is debt settlement, but before they decide that debt settlement is the plan of choice, consumers will need to weigh the pros and cons of the debt settlement service.
The Benefits
Debt settlement has clear benefits for consumers who work with the right company. If you do not work with the right company, it’s highly possible you’ll suffer in the process. This article will detail the pros and cons of debt settlement for consumers who choose a reputable company, such as Hamilton Debt Relief.
Bankruptcy Can Be Avoided
Bankruptcy remains on people’s credit reports for at least seven years but may last as long as 10 years. After 10 years, the person will not be in the clear because the bankruptcy will be on the public record for another 10 years. With a debt settlement, the longest amount of time it can be reported to the bureaus is seven years and it never appears on any court records.
Debts Will Be Completely Eliminated
With debt settlement, the creditors will agree to take a portion off of the balances they are owed. This strategy makes it possible for people to satisfy their debt between two and four years, a much shorter period of time than if they tried to pay the debt in full.
The Negatives
As with most things in this world, debt settlement is not all positive. People in debt will need to make sure that they can accept the negatives involved with debt settlement before they agree to the terms.
Debtors Must Stop Paying Their Creditors
A common tactic for debt settlement companies is to advise their clients to stop making their monthly payments. In order to encourage creditors to negotiate a better deal for their clients, they will need to be behind in their payments. The best chance of obtaining the most optimal deal is if the account is going to be charged off. This cannot happen until the clients are behind in their payments.
Late Payments Negatively Affect Credit Scores
The debt settlement company will set up a savings account for its clients and suggest that they pay the company instead of their creditors. The money that grows in the savings account will be what the debt settlement company offers as a settlement to the creditors. In the meantime, their creditors will be reporting late payments to the credit bureaus, and this causes their credit scores to go down. Late payments can remain on people’s credit reports for as long as seven years.
Settled Debts Will Not Be Reported as Paid In Full
Paid in full is the best thing a credit report can say about a debt but these are not the words that will be written on a settled account. A settled account will read “charged-off settled” or “paid-settled.” It may take a couple of years for people to be able to qualify for new credit after they have received a charged-off settled or a paid-settled entry on their reports.
Taxes May Be Required
The percentage that the debt settlement company manages to shave off of the balance is considered to be income by the Internal Revenue Service (IRS). As a result, people may be required to pay income taxes on this amount.