The Truth about Debt Settlement Not Being the Best Option

Many people inquire about debt settlement and it is somewhat sad that not everyone knows the truth about debt settlement. Many people think of debt settlement as a quick solution, but it is as fast as it seems to be? Read on and discover what it is as well as the truth about debt settlement.

What Data Say

Recent data has proved that debt settlement is not as quick and effective as individuals think it is. The data actually shows the truth about debt settlement, which states it is a cause for an increase in financial troubles. If you are considering debt settlement, you may to read on and discover the truth about debt settlement before making the final decision.

Defining Debt Settlement

Firstly, it is important you are aware of the basic definitions. There are a couple of terms below, which you may come across when searching options for debt payoff:

  • Debt settlement
  • Debt management
  • Debt consolidation

Debt Settlement

This is the act of discussing paying less than the full amount that you owe for your debt. This is done via a company that reserves your payments to the creditor and keeps them in an escrow account. Once a certain amount of money is saved up, the company tries to persuade the creditor to take the full amount and forget about the rest of the debt. The truth about debt settlement is that it has a major effect on your credit score.

Debt Management

An individual enters this special program with a third party company. Companies for debt management discuss getting low payments and interest rates for you with your creditor. They then put you on a plan for repayment. After this, you make your payments. This strategy also hurts your credit score a lot.

Debt Consolidation

This is the act of joining all debt accounts into one. It usually happens in the form of new credit, which you use to pay off your entire accounts. This way only works well if the new line of credit or new loans come at a low interest rate than the entire or one of your present accounts. In order to help with this, many individuals seek for companies, but this is usually the start of a trap that leads you to debt settlement or management. Instead of this, you can consolidate your own and choose to:

  • Apply for a peer-to-peer loan
  • Apply for a balance transfer credit card
  • Use a home equity loan

If you consider any of the ways above, you can use new credit in order to pay off old debt at an interest rate that is lower. This helps you pay off your debt faster and makes it easier for you to manage your payments. It is important you can distinguish between these three things. If you choose to search one of these terms, you will usually encounter the other two, which makes it difficult to understand what steps should be taken and what companies are advertising.

Debt Settlement May Be More Harmful than Helpful

Now that you are aware of the truth about debt settlement, you will also know it only sounds like a quick and easy way to eliminate one from debt. Many people choose debt settlement as a form of getting out of debt, but sadly, the opposite usually happens. Data from The New York Times has shown those who opt for debt settlement do so in the hope that it will help them to take some action and obtain a fresh start once it is finishes. The data shows the results usually show the opposite, as customers who signed up found their debts grew about 20 percent. This is the sad truth about debt settlement and why this method should be avoided as much as possible.

What It Means

What this means is as long as the payments remain unpaid, your debt continues to grow due to the fees and interest. With this, there is no guarantee that the result of the settlement will be successful. A further truth about debt settlement is the percentage of those individuals who have successfully completed the debt settlement program is amongst the single digits. Regardless of how bad this is, the worst thing is this program can actually lead one to bankruptcy.

If you are struggling with numerous debts, then you may want to know that even a very successful settlement program may not be able to cover your entire debt. This puts you in a position that will give you more relief in the end, which means you will need to consider a method that can solve your debt problem and give you much relief in the end.