Facing a huge amount of debt is something no individual or business wants to deal with. Unfortunately, credit use is virtually required in the modern age. But that doesn’t mean you’re bound to owe a debt for the rest of your life. Relief is available. Consider these four tips if you’re thinking about a debt settlement program to get out of massive debt.
Debt Settlement Is Different Than Credit Counseling
One of the first things you need to know is that debt settlement is different than credit counseling. Settlement is an option for individuals and businesses that meet certain criteria regarding the kinds of loans they’ve taken out and how far along they are in terms of missed payments. Settlement also involves negotiating with creditors directly to agree on a lower amount than you owe, paid either via a lump sum or a payment plan.
Credit counseling is more of a first step toward debt management. It involves creating a budget, identifying ways to better manage your finances, and creating a debt management plan to get out of debt while minimizing any damage to your credit score.
Know What Debt Settlement Is
Before you agree to a debt settlement, you should understand its benefits and drawbacks. This might sound fantastic, but note that debt settlement will have a negative effect on your credit score. Also, there’s no guarantee that a creditor will agree to a settlement.
The creditor may also require that you pay the negotiated amount upfront to clear the debt. This can save thousands, but it’s only an option for individuals who have enough saved to make a lump sum payment.
Understand Its Effect on Your Credit Score
Debt settlement will negatively affect your credit score, but this factor online might not be enough to stop you from pursuing this option. First, you only qualify for debt settlement if your payments are past due. This means your credit score is already on the line and will continue to drop in value until you bring your accounts current.
Second, you can negotiate to reduce the effect that settlement has on your credit score. Generally, debts that are settled are listed as “settled” on your credit report. However, if you or a debt settlement agency speaking on your behalf ask the creditor, you may have the debt reported as “paid as agreed” instead. This is far more beneficial to your credit score. Also, since you’ll be bringing your accounts current, settlement can be a net benefit for your credit score.
Work With a Debt Settlement Company
It’s entirely possible to work with the IRS, creditors, and debt collectors to negotiate a settlement. However, this is often a lot for an individual to take on. A debt settlement agency is a fantastic option for people who either have ample debt or simply want professional guidance to ensure the best outcome possible.
Debt settlement has many benefits, but there are some drawbacks too — namely, the impact it has on your credit. Still, it’s often the better choice over letting your accounts go unpaid. If you find yourself behind on payments and meet the criteria for a settlement, consider working with an agency to guarantee the best outcome possible.