Debt settlement can be a positive alternative to bankruptcy, and it can serve as a financial aid to those people who may have difficulty affording even the lower monthly payments that result from consolidation. Generally, debt settlement is not geared towards people who are only a month or two behind on their payments. Instead, it is designed to help those who are over six months delinquent or people who simply cannot pay off their debts.
Professionals in the debt settlement industry will work with their clients’ creditors to find a debt reduction plan that will work for both parties. In some cases, clients can find that their debts have been cut in half or more. This can save them thousands of dollars in the long run, and unlike bankruptcy, it allows them to hold onto their assets.
The Downside of Debt Settlement
While saving thousands of dollars can go a long way in helping to someone get out of debt, there are disadvantages of debt settlement that should be considered. The primary problem that arises from settlement is that it negatively affects credit scores. Debt settlement can remain on a report for as long as ten years, and it can hinder a person’s ability to obtain a loan, purchase a home or an automobile, or even rent an apartment.
The disadvantages of debt settlement do not stop at credit reports. There is a chance that one seeking settlement can be sued by his creditors. If the case does go to court, there is a possibility that wages can be garnished, or that the full debt will have to be paid, so settlement is not something that should be seen as a first option.