Should I use a debt settlement company or program.
Many people want to know if using a debt settlement company is damaging to their credit. They want to know some of the advantages or disadvantages to this process, and whether it is the overall best option for them. They would like to know if a settlement is recommended.
Regarding your ratings, while it will lower your credit scores and ratings if you use the services offered by a debt settlement program or company, this may not be the as bad as it sounds when considering alternatives. People also need to keep in mind that if you can’t afford to pay your credit card debts and either pay late or miss payments, that your credit scores will be hurt by that as well.
After you have finished the debt settlement plan, it will be indicated on your credit report as a paid settlement or some other type of similar entry. There are numerous factors that impact your credit scores, so it is not possible to isolate the exact impact. For example, depending on how long ago you settled the debt when combined with other bad entries, your age, frequency, the balances on your other credit cards, the severity of other bad debts, the age of the credit file, the timing of your payments, and other factors that go into your score will determine how much the settled credit card debt affects your ratings.
Key negative factors of debt settlement to consider
So like most options to getting out of debt, you need to take a close look at this program and weigh the pros and cons. it disadvantage is that they can be hard to even enter into. Typically you will need to have had to missed a couple of payments on your bills before a credit card issuer will even consider the debt settlement plan. So, while you are late on and/or missing these payments, you will probably experience collection calls and could even very likely be sued for collection.
So as indicated above, missing the couple of payments will negatively impact your credit rating. After all, credit card issuers and banks settle for less than they are owed when they think you are in financial hardship, so they will not offer this to someone who is paying on time and not under duress. The issuers and banks are just trying to minimize their losses, like any business does.
Also, it is possible for a debt settlement company to possibly create or increase some problems rather than solve them. For example, you need to be on the lookout for unreasonable monthly charges and service fees. Shop around. Be aware that some companies will even try to charge you with enrollment fees even before they do any work on your behalf. These various fees and monthly charges are in addition to your unpaid credit card debt and these fees and extra costs may put you further behind in your efforts to pay. Remember that any money, fees, and charges that you pay to a debt settlement company could actually be used to pay off the debts you owe, so before you sign up, consider what the best use for your money is.
Some programs also have a high drop out rate. So if you review the plan and sign up, be sure you conclude it. As if you drop out, it doesn’t accomplish anything other than make debt settlement company more profitable and make any fees you paid as being wasted.
Part of the program you agree to may also include a monthly payment that you make directly to the settlement company instead of it being paid directly to your credit card company. If this is the case, be sure to make certain this payment is affordable to you and also realistic. The payments will usually be held in escrow to use for the settlement of your credit card debts. Ask for how long and how many payments you need to make, as too low of a payment will mean a longer time frame until the debt is eliminated.
So the above list of items are just some of the cons. Note some of these can be offset on rare occasions. This may be the case for those who are able to sign up directly with the credit card company rather than go thru the settlement company. Learn more.
Key positive factors to consider
There are many positive reasons to use a debt settlement company as well. Always be sure to consider these as well when making a decision. A reputable debt settlement company is full of experienced professionals who can provide you with top notch service, and who are already familiar with the settlement process. These companies have the relationships, and the ability to negotiate as there are several key aspects to the negotiation the company will need to put into practice on your behalf. A firm will have good relationships with various banks, lenders, and creditors, so their chances of being successful are improved. In addition, it can be very stressful, so by letting others expend their effort and time in settling your credit card debt will reduce you stress and can free up your time for other activities.
After you review different companies and determine this is your best option, make certain you read, question, and fully understand all the terms of the program, any settlement plans and agreements before signing a contract. Also, get everything in writing, and keep copies. After your debt is settled make certain the account is marked closed on your credit reports and reported to all credit bureaus.
Other options besides debt settlement
Some other options to go over before considering debt settlement is to review counseling options such as the Consumer Credit Counseling Services and also credit card hardship programs.
Some ways in how they differ is as follows. At Consumer Credit Counseling organizations, consumers are taught to budget and manage their debt on their own. Consumers will need to commit to stop using credit cards and live on a budget that will not allow them to go into future debt.
By using a budget, following the guidelines, and adhering to program like this, the consumer will slowly but surely pay their credit card debts completely versus using the settlement company. With Consumer Counseling services the person in the program will be sending one check to their agency on a monthly basis. The organization will pass these funds to the various banks and creditors that are owed money.
In addition, Consumer Counseling organizations will try to negotiate directly with creditors to reduce your interest rates so that more of the monthly amounts you pay on a recurring basis are used to pay off the debt principal.