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The PROs and CONs of Debt Settlement

Written by: John Doan

Article Overview: This article will cover the most basic reasons why consumers sometimes don't feel comfortable with a debt settlement program. I think the main reason is because there are debt agents who just don't do a good enough job explaining the program, as my title states, the Pro's AND the Con's.

The PROs and CONs of Debt Settlement

It's obvious that the American economy is in one of it's weakest positions in history. With that said, job losses are soaring, homeless rates are going up due to foreclosure, and crime is rising. Banks aren't lending money and people just don't have money to pay back their debts. If you ask any attorney, filing for bankruptcy is the best way to go and that may be true but filing for bankruptcy involves upfront costs that the majority of consumers do not have. In that case, debt settlement or debt relief is the best option for wiping out unsecured debt. In any program, there's always a benefit or Pro's to the program. When speaking to an agent at any company, you'll hear most of the good stuff just as you would hear in any other sales environment. A good company will train their people to talk about both good and bad things so that customers are making an educated, logical decision when enrolling into the program. So let's talk about debt settlement. Debt settlement is a savings program where a consumer would set aside a particular amount of money every month so that it could be used to pay off the credit cards in a lump sum fashion. As we all know, there is no negotiating with creditors or collection agencies unless you have the full negotiated amount ready for wiring. Well as time passes and more and more money has been set aside, each creditor will get it's turn for a negotiations. This is the reason why these programs tend to start at about 12 months and can go as long as 48 months. So the program is set up so that the savings payments of the program are usually about half of what the clients usual minimum payments are, thus saving a lot of money every month and paying off the total debt load at half of what the principal balance is. Sounds like a great program so far right? Well it is but let's keep in mind that there are Con's to the program as well. Let me highlight all the main points of both sides for you to see:

The Pro's of Debt Settlement-

-Lower your payments up to half of what your minimum payments are. This will ease financial hardship for many people who are going through tough times right now.

-Reduce the PRINCIPAL amount of money due. Unlike a debt management, debt consolidation, or Consumer Credit Counseling program, this program is built to reduce the balance due and not the interest rate alone.

-This program will get rid of your debt much faster than paying the minimum payments. Paying minimum payments are designed to keep the consumer paying for a very long time. Per other major articles a $1000 credit card debt with an average 15% APR can take up to 22 years to pay off.

-Avoid destroying your credit like Bankruptcy would. Consumer credit Counseling and Bankruptcy programs are both public records once enrolled which means that future credit reports will reflect this. A debt settlement program is not a public record, therefore not as damaging to credit as a bankruptcy program is.

-Lastly, there are no out of the pocket fees. Other programs require that you pay an upfront fee. Debt Settlement is made so that fees are incorporated in the program, paid on a monthly basis.


The Con's of Debt Settlement-

-This program will cause a negative affect on a consumers credit report. Due to the fact that creditors are not receiving payments on a monthly basis, there will be delinquent payments reported. Again, this is the only way to pay the creditors in a lump sum fashion.

-Creditors will be calling to collect payments with harassing calls for the first 2-4 months of the program. A consumer in debt should be prepared for this. It's more annoying than anything but the consequences make up for all the benefits of the program in many cases.

-Your accounts could go to collections or you could get sued. Depending on the creditor, if you stop making payments, there's a chance you could get sued by the creditor. If this happened, a judgment would be issued and the debt settlement company would negotiate the judgment.

-The fees are pretty high. Although there are no out of the pocket fees, the fees are built into the program. Depending on the company, fees range anywhere from 12%-18% of the debt load being enrolled.

-Lastly, the consumer needs to keep in mind that the debts will not be paid for long amounts of time depending on the debt load and how many accounts are being enrolled. If a consumer has 1 $40,000 credit card and is being placed on a 4 year plan, well the creditor will not receive ANY payments for 47 months. Now on the flip side, if a consumer has 10 credit cards with $40,000, most likely, the creditors will be paid off one by one every few months.

Again, in any program, there are always Pro's and there are always Con's to the program. The best thing to do is to educate yourself before making any commitments. This program maybe for some people whereas this program may not be for others.

Please contact me with any other questions regarding the program, I'm available to answer questions any time. Thanks for reading and I hope this article helped you understand some details of the program better.

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Article Tags: american economy, amount of money, collection agencies, creditor, debt load, debt relief, debt settlement, filing for bankruptcy, good company, homeless rates, lending money, logical decision, lump sum, minimum payments, negotiating with creditors, principal balance, sales environment, time passes, unsecured debt, upfront costs



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