Whether you live in Pittsburgh, Philadelphia, or the area between, Pennsylvania residents all over the state struggle to get their debt under control. If you’ve borrowed too much money, put too many charges on your credit card, or have monthly payments you can’t make, getting out of debt can feel like a dream you’ll never achieve.
Struggling with out of control debt can be crippling. It can prevent you from going to school, buying a car, or purchasing the house of your dreams. Debt that you can’t manage can severely hold you back in life – but you’re not trapped under the weight of your debt.
Pennsylvania residents have other options when it comes to dealing with debt they can’t handle. One of those options is debt settlement.
What is Debt Settlement? How Does It Work?
When you settle a debt, you negotiate with your creditor to find a settlement amount they are willing to accept. This settlement is typically paid in full and up front, but it closes the debt. Once the settlement amount is paid, the rest of the debt is forgiven and both parties can move forward.
In order to settle your debt, you need your creditors to believe they will not receive payments from you on the money that you owe. This typically means you need to keep skipping your monthly payments and ignoring contact from your creditors when they try to collect from you. If you’re already struggling to make your monthly payments, you may already be doing this.
If your creditor believes that they will not get money from you, they will be more likely to agree to accept a smaller amount from you. This gives you a leg up when negotiating your settlement amount.
What Benefits Can Debt Settlement Provide? What Are the Drawbacks?
There are two sides to the debt settlement process. On the one hand, it can be extremely beneficial for individuals unable to meet the minimum monthly payments. If your first priority is getting out of debt – regardless of the damage it does to your credit score – debt settlement can be a great way to do so.
Through debt settlement, you can have the majority of your debt forgiven. This can potentially save you thousands of dollars in the long run. For someone already struggling to get by, this break can be seriously life changing.
But debt settlement can have a negative effect on your credit score. Because you must miss payments, your credit score will take a hit each month you don’t pay your bill. Additionally, missing payments will rack up late fees, interest charges, and other expenses that you will need to pay back if your creditor does not agree to a settlement.
Your creditor may also report the settlement to a credit bureau, causing an additional hit on your credit score. While settling the debt will eliminate your monthly payments, it shows that you borrowed more money than you were able to repay. This can hurt your financial health and prevent creditors from loaning to you in the future.
All kinds of debt cannot be settled through debt settlement. Unsecured debts, such as credit card debt, can be forgiven because there is not collateral attached to the debt. If you have secured debt, such as a mortgage, you will not qualify for a debt settlement program.
Everything You Need to Know About Debt Settlement in Pennsylvania
The statute of limitations surrounding debt in Pennsylvania is actually quite low. At only four years, the statute of limitations is the timeframe a creditor must file a lawsuit in to hold you accountable for a debt that you owe.
Before you apply for a debt settlement program, check to see if you are within the statute of limitations. If it has been over four years since you’ve defaulted on the payments, then you cannot be held accountable for repaying the money. This means you will not need to go through the debt settlement process in order to not pay the debt.
Debt settlement is not recommended for everyone. If you believe you can get out of debt with a second job, proper budgeting, or through more aggressive payments, you shouldn’t consider debt settlement.
Debt settlement also isn’t right for individuals who may need to file for bankruptcy. The debt settlement process focuses on only one debt at a time. If you’re struggling to pay off numerous credit cards or you have debts in other areas, bankruptcy may be a better option for you.
Don’t jump into a debt settlement program because you don’t want to pay back the money you borrowed. Be sure you understand both the benefits and the consequences before you make your decision.