A debt settlement can offer you a way to make lower payments and even lower your total balance. However, there are some debt negotiation pros and cons that you should consider before you decide to enter into a contract. If you carefully consider the positives and negatives, you can decide if this is the best alternative to help you get out of financial trouble.
In short, these programs can give you a way to make one payment to a company who will handle your debts. This should lower your payments, extend your time, and make everything a lot easier. This solution does not work for everybody though. Some have too much debt or are unable to make these smaller monthly payments at all.
If you use a debt settlement company, they can help you reduce payments and even your total balance. This whole transaction may go on your credit report hurting your chance to get credit for a awhile in the future. This is usually not permanent damage though. In the short term, it is better to stick to your original terms. If you cannot do this, debt negotiation is a good alternative.
what happens to your credit score? When you first enter into a program like this, your credit will probably take a hit. However, as you regularly make payments on time, your credit should gradually improve over time. This may not be a quick solution, but it can provide a solution to help you improve your financial life and credit over the course of several months.
So your credit score will take an initial hit. However, it can also improve more rapidly than it would if you just kept struggling with large credit balances that you keep paying late. Sometimes it is better to take that initial hit so you can get back on track.
It can also simplify your financial life. Instead of sending regular payments to each creditor, you are free to simply send one payment to your debt settlement company. The will distribute the right amount to each creditor and collect their own fee out of this.
The debt management company also sends you a monthly statement. This gives you a convenient way to keep track of your progress and see which creditors are being paid off.
There are both debt negotiation pros and cons, and you have to consider both. Consider the possible downsides of these arrangements too.
You should know that these companies do charge fees. There are nonprofit organizations that are approved by the government. They charge lower fees so more of your payment should be going towards your creditors. You might choose to work with an approved company so you will not be paying unnecessary feeds. The idea should be that your balances are negotiated, so even if you have to pay fees, your payments should still be lower than they were before.
Yes, your credit score will suffer for awhile. This is probably not as bad as a bankruptcy, but you will take a hit. However, if you can keep up a regular schedule of payments, you should also see your credit score increase over time. Once you have totally paid off your debt, you should be back on track to establishing very good credit again!
You might consider all of the debt negotiation pros and cons before you decide what to do. This gives you a way to start over with lower monthly payments and no creditors hounding you for late payments. It also involves a commitment on your part. You have to stick to the new schedule or you will be dropped from the program. The choice can be hard to make, but is generally positive if you use a good agency.