If you are in deep with credit cards or student loans, consider the best debt relief options. Debt settlement can be one of the most approached methods for having a hefty amount of debt.

Debts can feel like a burden on your shoulders. However, that still won’t stop people from looking for an easy process to speed up the clearing of debt. Sometimes, this is achieved via different companies that will negotiate your debt on your behalf. They are called debt settlement companies.

However, before digging too deeply into it, it’s essential to know the debt settlement pros and cons.

Pros of Debt Settlement

Lowers Your Debt Obligation

The number one reason to go for debt settlement is that you will pay less than you owed to the collectors. This can get you out of debt faster than usual. If you are simply making payments on your own, it would be slower for you to pay off your debts. Card settlement often results in reduced debt money to pay off.

Avoid Bankruptcy

Bankruptcy can affect your finances severely. Settling debt is often a better choice than facing the consequences. You’ll be repaying your debt faster than you usually would do.

Even if the bankruptcy disappears from your credit report, several banks will ask you if you have ever filed for bankruptcy. This will disqualify you from getting credit for decades. Bankruptcy is a public process that can be quite humiliating, and the consequences are painful to get rid of.

Stop Getting Collection Calls

Borrowers get tired of being harassed by the collectors’ constant phone calls and visits. Settling debt is the only choice that relieves them from getting pestered.

Multiple High-Interest Cards

Another option is to transfer the balance of the existing credit cards to your account if you own more than one credit card with high interest. Many of these transfers offer a lower percentage of interest in their initial period. It can be a favorable option to pay off your debt entirely; however, this is a temporary solution as the offer of low interest can go off.

Cons of Debt Settlement

Tax Repercussions

Whenever you are borrowing from any creditor, you are legally responsible for repaying the debt. Just settling the debt won’t let you skip this legal obligation. It is one of the most pertinent aspects of debt settlement.

Therefore, the creditors will share a 1099-C form with you if your settled debt is more than $600. This form will inform the IRS of the difference between the exact amount and the amount you paid. You may not have to pay further taxes if you can prove insolvency.

Affects Credit Report

Settled debts will be noted on your credit report. Sometimes, it stays for seven long years, and this might create difficulty while applying for any new credit. However, you can cultivate good credit habits to solve this issue.

Unwilling Creditors

There is no guarantee as such that your creditor will be willing to negotiate your debt. However, working with experts can be beneficial as this will pave the path to have a good relationship with creditors to reach a favorable agreement.

It can be quite challenging to break free from credit card debt when it holds you hostage from your future. Get your facts on debt settlement pros and cons right before hiring a settlement company to consolidate your debt.