If you have unsecured debt that has gotten out of control, you’re probably looking for a way to reduce some of the stress associated with paying it off. While you may be trying to find new forms of income that can give you more money to pay your debts, it isn’t always easy to increase your salary or take on a second – or even third – job.
Luckily, you may have some other options for getting out of debt. For some individuals, debt settlement in Montana can be just the kind of relief you need.
What is Debt Settlement?
Debt settlement is a kind of debt relief program that allows you to reduce the overall amount of debt you need to pay back. Through the debt settlement process, you and your creditor would come to a new agreement about how much money you will need to pay them.
In most debt settlement situations, the debtor will make a large lump sum payment that cancels the debt. This payment is typically much lower than the amount of debt you actually owe, but it is enough to get the creditor to agree to close out the debt.
But debt settlement can be a long process – one that your creditor doesn’t want to agree to. This can make it extremely difficult to successfully settle your debt.
Pros and Cons of Debt Settlement
Debt settlement can have a number of advantages, but there are some downsides as well. If you’re considering debt settlement, you will want to understand both sides of the picture before you apply for a program.
On the positive side, debt settlement can significantly reduce the total money that you owe on one debt or loan. If you have one credit card that you do not believe you will be able to pay off in your lifetime, then debt settlement may be one of your best options for establishing financial freedom.
Debt settlement can also be a great option for relief if you’re already in default on your payments. If you’ve been missing payments or the debt as been sent to collections, debt settlement can be a positive outcome for both you and your creditor.
However, debt settlement is not right for everyone. If you are able to make the minimum monthly payments on your loan without too much of a struggle, debt settlement may not provide you with the relief you’re looking for. While it can reduce your overall payment amount, it can also hurt your credit score – preventing you from borrowing money when you need it in the future.
The debt settlement process works by allowing your creditor to believe they will never see another dollar from you. If you’re constantly missing payments, avoiding their calls, and not cooperating with debt collectors, they may believe you’re attempting to get away without paying your debt. When you come to them with a debt settlement offer, they may agree on the belief it is the only way they will see cash from you.
However, if you’re not already late on your payments, you’ll need to begin skipping them immediately for debt settlement to work. During this process, your credit score will dip and you will be hit with late fees and interest charges. This can send you even deeper into debt, especially if your creditor does not agree to your settlement offer.
If the creditor does agree to take a settlement amount for the debt, you will probably be required to make a large payment after the negotiations are finalized. This means you will need to save that money. If you’re struggling with debt as it is, this isn’t always easy.
Finally, debt settlement only focuses on one debt. If you’re struggling to pay off many different loans or credit cards, settling your debt with one creditor will not help relieve you of your other loans. If you’re struggling with multiple debts, there may be a better relief option for you.
Who Should Consider Debt Settlement?
While debt settlement does have its downsides, it should still be strongly considered by some individuals. Prime candidates for debt settlement include individuals who do not have other options for debt relief, such as debt consolidation or filing for bankruptcy.
Prime candidates for debt settlement should also only have unsecured debts. Not all debts can be reduced or eliminated through the debt settlement process. If your debt is a credit card, medical bill, or unsecured personal loan, debt settlement may be an option for you. Mortgages, title loans, and other secured debts cannot be reduced through the settlement process.
Always talk to a debt relief professional before deciding whether or not you should settle your debt.