Advantages and disadvantages of debt settlement program

Some credit counselors feel that debt settlement program is a very good option for someone who is already overwhelmed by his existing debts and cannot afford to keep his accounts current. This program is best suited for someone when he is already confronted with bad credit problems and is getting regular collection calls. The process of debt settlement starts by negotiating with the creditors for the borrowers’ accounts due to his inability to pay the balance in full. The overall idea is to reduce the total balance and the lower monthly payment plan will help to pay off the debts faster. Credit card debt settlement company will negotiate with the creditors on behalf of the borrower to lower the balances and put it in an affordable monthly payment plan after the settlement proposal is finalized. Effects of debt settlement or better known as debt negotiation program have its own set of advantages as well as disadvantages.

  • Advantages of credit card debt settlement program:

1.    The immediate effect of the debt settlement is that the part of the debt is wiped out by your creditor. This will help you to review your monthly budget and managing monthly debt payments.

   When you are enrolled in a debt relief program, many of the creditors will try to re-age your accounts and bring it to a current status.

3.    Debt settlement program will eliminate the interests and fees from the outstanding balance, thereby making the monthly payments quite lower and affordable.

4.    This program will also eliminate the over limit fees.

5.    By signing up in the debt settlement program, you can actually get the help of the debt settlement company negotiating with your creditors and thereby stop collection calls, reducing most of the tensions of your life.

  • Disadvantages of the debt settlement program:

1.    Though debt settlement program can be very helpful in eliminating your debts, keep in mind this program has a severe effect on your credit ratings. If you are just fallen behind in your monthly payments to your creditors, these accounts will have to fall delinquent for a certain period of time before you can get substantial discounts from your creditors. Thus, your credit scores are expected to fall, if it had been good in the past, while you are in this program.

2.    When your debts are reduced in the credit card debt settlement program, the balance waived off is showed as an income and you are required to file taxes on it.

3.    When you are enrolled in the debt settlement program, you should be having enough balance over a certain period of time so that the settlement proposal can be finalized with the creditor. If it is put on a payment plan, make sure that you stick to it. Defaulting in the payment plan will void the settlement offer.

By signing for a debt settlement program when your credit is already tarnished, you will find there is a way to improve your credit ratings after your accounts are paid off one by one and when they are reported to the credit bureaus. It help you to focus on managing your credit better Instead of juggling late payments, high debts loads, and other factors.