A debt settlement program involves making a payment to your creditors once a month. The majority of individuals who enter a debt relief plan have already defaulted on their credit agreements. If an account was still current, your creditors wouldn’t permit the program to go ahead. Why would they want to settle an account for a fraction of its value when they’re already receiving repayment.
Pros of a Debt Settlement Plan
– Rather than paying the figure that’s stated in your credit agreement, you’ll pay your creditors what you can afford each month.
– It can be impossible to know what to do when creditors call you. You now have debt consolidation company to help so all enquiries can be passed to them.
– If you use a credit counseling service, you can eliminate up to 50% of your debt. You may be able to to enjoy some success yourself, but the results are less certain.
– Despite the fact that you’ve contravened the terms of your credit agreements by entering a debt settlement program, your credit rating is unlikely to drop much further.
Disadvantages of a Debt Settlement Plan
– Unlike filing chapter 7, debt settlement isn’t a legally binding agreement. It can be stopped at any time. You may find that your creditors will make contact in an attempt to get their money.
– Your FICO score will fall if you enter a debt relief program. However, a low credit score is less critical than becoming debt free. The information will be held by credit reference agencies for 7 years.
– You’ll need to make a contribution each month for for the next 36 months, possibly longer. If you’d filed chapter 7, your debt would have been eliminated in under 6 months. Not everyone can afford to offer money to their creditors due to difficult personal circumstances.
– Although the FTC has made it illegal to front-load, you should still expect to pay a 15% management charge. This will be deducted from each monthly payment.
– You cannot include credit in your debt-free plan. These will need to be paid separately.
– The debt that you’ve cleared is likely to be treated as taxable indebtedness income. Unless you’re technically insolvent, you’ll pay tax. It’s advisable that you speak to a tax advisor to make sure that you have enough debt settlement information for your personal circumstances.
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