Are you overwhelmed by the burden of debt? If yes, then debt settlement companies can help you; but this often comes at a steep price.
So in this article, we have discussed the pros and cons that you must consider carefully before making the final decision.
What Is A Debt Settlement?
Before considering the pros and cons of a debt settlement company, we first need to understand what is debt settlement?
So debt settlement involves paying a good part of your debt to your creditor instead of paying the entire sum of the debt.
A person takes this route when he is incapable of paying the entire amount of debt and your creditor agrees to accept a lesser amount for fear of not getting anything at all.
But for a debt settlement, you need expert negotiators, and here come debt settlement companies.
These companies assist you in getting rid of your debt by negotiating with your creditors on your behalf.
If you are looking for a debt settlement company, then you might want to check out Accredited Debt Relief reviews.
Read: How Much Debt The US Has In 2023? – US Debt Statistics
Pros And Cons Of A Debt Settlement Company
Just like a coin has two sides, debt settlement, too, has both pros and cons. Let’s have a look at them:
Pros of A Debt Settlement Company
- Expert negotiators – Debt Settlement companies have years of experience, and they know what they are doing. If you want to opt for debt settlement, then no one other than their expert negotiators can help you with this best.
- You will be free – Debt Settlement Company can help you in wiping off your entire debt, after which you will finally be able to breathe.
- Avoid Bankruptcy – Debt Settlement is surely a better option than bankruptcy. Although it will remain on your credit report for seven years, it is much better than a lifelong humiliation.
- Stop getting pestered by collection agencies – Once your debt is settled, you will obviously stop getting irritating calls from collection agencies.
Cons of A Debt Settlement Company
- Increased debt – Debt settlement companies charge fees (ranging from 15-35% of your debt) for the services rendered to you. Also, the more time your settlement takes, the more interest and late fees charges would accumulate in your name, and these hefty fees can add more to your debt.
- Negative impact on your credit score – During the debt settlement process, your agency will ask you to stop making monthly payments to your creditor to make them believe you do not have the money to pay them back. This will plummet your credit score very much.
- Negotiation troubles – The bitter truth is that your creditor might decline a settlement. In that case, you will need to put up a counter offer, and in the worst-case scenario, you might lead yourself more towards bankruptcy due to the rejected settlement.
- Pay tax – If you have settled more than $600 of debt, then you will have to pay income tax on your settled debt.
Also Read: 5 Things You Should Know About A Debt Relief Company In 2023
Conclusion
Debt settlement is not a magical way of making you debt-free, but it can help you immensely when you have no other options left. We hope you found this article helpful.
Shefali Jain is a Content Writer & Editor at USWorkforce.org
After completing her graduation in hospitality, Shefali decided to follow her passion and started writing. Shefali has been writing for two years now and contributes to our website as a skilled editor and content writer with strong research skills. Writing product and service reviews, biographies, and book reviews are some of her key areas, among many others in which she specializes. In her time at the organization, she has written and edited content on a range of topics, including employment law, human resources, and business management.
