A Dangerous Deed - The Drawbacks Of Debt Settlement

By Author: J.J. Yong
Total Articles: 963
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Having an unpaid debt is a serious matter and can significantly burden you not just financially, but also emotionally, socially and perhaps even damage your physical health. Whilst debt settlement is a feasible solution, there are notable drawbacks that you may face from choosing to do it.

Nothing's Ever For Free

As the saying goes, "There's no such thing as a free lunch". This is no different in the case of debt settlement. Typically, debtors would enlist the services of a company specialising in such matters to help them in the process. By doing so, the debtor would have to eventually face the service charges imposed on them by that firm. Usually, this is around 10-15% of the debt amount that they owe. Consequently, the debtor concerned will not only have to worry about sorting out their outstanding debts, they would now also need to fork out additional cash to pay the company concerned.

Taking The Credit, Or Rather, The Blame

Although admittedly debt settlement does help make your repayment process a lot smoother and less burdensome, it nevertheless puts negative information into your credit report. ...
... Certainly, this is less damaging than opting to declare yourself bankrupt. However, the effects of debt settlement will still be reflected in your credit report in the span of the next 7-10 years, in the absence of any other mitigating circumstances that may arise. This might pose problems to you when you need to obtain new loans or credit cards, find a job or secure a competitive insurance rate for yourself.

The Taxing Truth

Whilst you may succeed in eliminating your debts via debt settlement, you may nonetheless be charged taxes on those settled accounts, since these are treated as income. This becomes an additional cost you have to bear, amidst your already burdensome financial scenario.

Other Alternatives Routes

There are other ways of settling your debts besides debt settlement, and a few of them are as follows:

Debt consolidation. In essence, this is basically getting a loan to settle off all your outstanding debts, but at a lower or fixed interest rate. Depending on the details of the arrangement, this may not be any better from debt settlement. But it is up to you to weigh the pros and cons of either option and decide which is the one that is less costly for you.

Consumer credit counselling. These are usually available via non-profit organisations who will probably charge you a much lesser fee for their services as opposed to a debt settlement company. The counsellor assigned to you will help you and your creditors to work out an achievable debt repayment plan. They may even be able to help negotiate a reduction in interest rate and/or minimum payments for you.

Pay in full. This, of course, would be the best way of solving your problem. But the reason you are considering debt settlement in the first place is most likely because you are already in some amount of financial difficulty, so usually this option is out of the question.

Therefore, we can conclude that there are significant consequences that are faced whenever the option of debt settlement is taken up. However, it does not mean that it should not be considered altogether. What matters most is that you are aware of all the potential drawbacks and are well prepared for it, should you make this your chosen method for dissolving your debts.
For more information about debt settlement companies, visit http://DebtSettlementChoice.com