Debt can be crushing. Whether you owe $20,000 in credit card debt or $100,000 from student loans, the financial pressure can feel suffocating. Fortunately, there is a solution thanks to debt settlement. It provides people a way to resolve their ongoing dues and offers a way back to financial stability.
Debt settlement isn’t without consequences, though. While you will pay less than what you owed initially, it comes at the cost of your credit score. Therefore, it becomes significantly harder for individuals to get favorable terms on mortgages, payday loans, student loans, or personal loans.
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How Does Debt Settlement Work?
Debt settlement is a way of reducing your outstanding balance. This process typically involves unsecured debts, such as medical bills, court-ordered child support, and credit card bills. It doesn’t work for all obligations, including federal student loans and mortgages.
The settlement involves you or a representative negotiating with the creditors and lenders to settle what you owe. For instance, if you owe $20,000, you might agree to pay $10,000 as a lump sum. The settlements will repeat themselves for every financial institution that you owe.
Keep in mind that debt settlement is not the equivalent of a pause button. You may still be collecting late fees and interest penalties on your obligations. If you believe debt settlement is the right option for you, act swiftly and call an expert today.
What Are the Advantages of Debt Settlement?
Debt settlement can be a viable option if you want to reduce what you owe to creditors. A reputable debt settlement company or attorney will also be able to give you a timeline and projection for the length of the repayment and financial obligations. That way, you have a clear picture when it comes to expectations and preparing for the future.
The process is exponentially more straightforward when you have a financial expert on your side. A legal representative can assist you when it comes to navigating the hurdles of settling and repayment. This expertise can ensure you get a settlement that works on your terms, not the other way around.
For instance, a representative will make you produce competitive offers during your debt settlement. That can include details from the lump sum payment total to the interest rate. Plus, bankruptcy attorneys have clout when it comes to dealing with creditors and lenders so you can rest assured knowing they will protect you in case of threats or harassment.
What Are the Drawbacks of Debt Settlement?
Debt settlement can eliminate your outstanding obligations within a year and a half. Of course, there are some potential repercussions. These repercussions include, but are not limited to:
- Damaged Credit: Your credit report and score will take a hit after the settlement. The effect can be especially dramatic if you cannot make the payments in full. It will also show up on your credit history report for the next seven years.
- Penalty and Interest Charges: As mentioned above, you will likely get dinged with additional fees. That is because many debt settlement companies encourage clients to stop making payments to lenders. There also may be fees associated with monthly maintenance of your account and the set up of the program.
- Forgiven Debts Can Be Taxable: the IRS usually views forgiven debt as a form of income. Therefore, you will have to list it on your taxes as an asset. You can learn more about the tax consequences of debt settlement here.
Alternatives to Debt Settlement
Debt settlement is not right for everyone. Many financial experts advise trying Chapter 7 bankruptcy to erase debts first. While both processes with hurt your credit scores, Chapter 7 lets you start rebuilding your financial reputation immediately.
You may also want to consider a debt management plan. This arrangement addresses sizeable outstanding debt with a credit counselor negotiating with creditors to reduce interest rates and monthly payment as well as waiving fees. The results can yield a consolidation repayment at a lower cost without having to declare bankruptcy.
Debt settlement can be a harrowing process. It requires working with creditors and lenders to reach agreeable terms that will not tank your future finances. If you decide debt settlement is right for you, make sure you have a professional debt attorney on your side.
The Pope Firm will ensure you get the representation you need for a better future. Our team will take the time to understand your situation, needs, and goals and work with you to put you in the most favorable position possible. Discover what we can do for you by calling us at (865) 324-0456 today.
We have offices located in Johnson City, Knoxville, Kingsport, Chattanooga, and Morristown, TN and want to help you through this difficult period of your life. Contact us, and we can help you to decide how to move forward with the proceedings, and you can have confidence that your steps will be guided in the right direction.
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