Debt Settlement

Debt settlement is a fairly aggressive approach to credit card debt relief. It is commonly advertised as a highly successful solution for reducing debt to a fraction of its current level, resulting in dramatically reduced payoff time in combination with significantly reduced monthly payments that attain affordable levels. But there are some very important details about debt settlement that are intentionally being omitted from the advertising that need to be clearly understood by all consumers who are considering this option. When it has been properly evaluated in light of all of its positive and negative aspects, debt settlement then rightfully emerges as a risky option that should be approached cautiously and is best reserved only for those who have extreme debt circumstances.

Debt Settlement Risks

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Part of the process of debt settlement requires the consumer to stop making any payments to their creditors until a settlement has been reached with them. The missed payments of course will always cause credit damage, and damaged credit can prove to be costly in terms of being forced to pay higher interest rates on future loans and extensions of credit. Even worse, new applications for credit could be denied entirely. Credit damage can even hinder the consumer’s ability to gain future employment. But there are also other serious risks that are posed by debt settlement such as having the accounts sent to collection, wage garnishments and judgements. And consumers must also accept the fact that since debt settlement relies on a negotiation between the creditors and the debt settlement company, the actual settlement results can not be guaranteed. Creditors sometimes offer very poor settlements or simply refuse to negotiate on the debt at all. Another risk that shouldn’t be overlooked is that some unethical debt settlement companies may quote the consumer an unrealistically low payment just to get their business, knowing all the while that the process will ultimately be doomed to failure. And dropping out of a debt settlement program can land the consumer in even more trouble than they had when they started.

Who Should Use Debt Settlement

Now that you understand the serious risks involved with debt settlement, you may wonder why consumers would willingly subject themselves to them. The answer is that there are some consumers whose debt situation is so dire that it dictates the use of such a risky solution. This could be the case when the monthly payments required in a credit counseling program are simply unaffordable for them. Debt settlement may also be a preferable choice for those who want to avoid declaring bankruptcy.