When faced with a significant amount of debt, you may feel trapped by your creditors. Even though debt relief options are available, you may think that they are too good to be true or that they will only further harm your financial situation. Not all debt relief solutions are created equal and some can cause more financial trouble than you already started with. It is important to understand that you can rebuild your credit, especially after using legitimate debt relief options.
Though bankruptcy is often a beneficial debt relief method, many people want to avoid it because they think it will damage their credit beyond repair. As a result, you and many others may want to explore other options that you think could help your situations, like debt settlement. However, it is wise to understand that debt settlement can come with serious risks.
What is debt settlement?
If you pursue the course of trying to reach a debt settlement, you would work with a debt settlement company that would negotiate with your creditors on your behalf in order to reach a lower balance than what you currently owe. Sounds great, right? However, settlement does not work for all types of outstanding debt, like mortgages or auto loans. Plus, settlement does not protect your credit score.
How is your credit damaged?
Typically, creditors will only work with settlement companies if it looks like you will not pay your outstanding balances at all. This means that you would have to stop making your payments and instead put your money toward the settlement account. As a result, your bills go into delinquency, and your credit score will suffer. Additionally, your lack of payment will result in late fees, interest and other penalties, which may only make your financial situation worse.
Is the debt reduction significant?
You may want to remember that debt settlement is not always successful. Some creditors may even refuse to work with settlement companies. Unfortunately, even if the company negotiates a reduction, you may still owe the majority of your original debt. On top of that, you will owe the settlement company fees for their services, which is often either a percentage of the settled debt or a percentage of the eliminated debt. Either way, you could owe thousands of dollars to the settlement company while still owing thousands to your creditors.
Are there better options?
Because of the cons of debt settlement, many individuals may be better off following a different debt relief route. Though filing for bankruptcy can seem scary, it may help you reach the relief you seek in a more significant way. In order to gain reliable information on this option and whether you may qualify, speaking with a Tennessee attorney may be wise.