Pros And Cons Of Debt Settlement Services

The pros and cons of using debt settlement services are as diverse as eliminating debt or being sued. When people can no longer handle their debts, they often look for alternative to bankruptcy. Debt settlement is one of those options. Typically, people se debt settlement services to work on their behalf to reduce the amount they have to repay. However, working with debt settlement services can be risky. For instance, creditors may refuse to negotiate with debt settlement services.

Pros: Owe Less Money

Debt settlement services contact multiple creditors to negotiate lower payments than may be able to negotiate on their own. Also, they negotiate lower interest rates. Debt settlement services can negotiate what’s called cancelled debt. This debt is the portion of debts people aren’t responsible to repay. For instance, if someone owes $10,000 in credit card debt with one creditor and $4,000 of that debt is canceled the person only repays the balance.

Pros: Eliminate Debts Faster

People who use debt settlement services enter agreements to pay for a certain amount of time such as 36 months. This allows people to pay off debt faster than making minimum payments.

Pros: Avoid Bankruptcy

For people who want to avoid bankruptcy can achieve it by using debt settlement services.

Cons: Pay More Taxes

When debt settlement services convince creditors to cancel portions of people’s debt, it can be a double-edged sword. Granted, people won’t have to pay creditors the cancelled amount, but they will owe the Internal Revenue Service (IRS). The IRS considers any canceled debt taxable income and it expects people to pay the taxes on that money.

Cons: No Contact with Creditors

Typically, people must stop paying creditors directly and send their payment to the debt settlement services. The debt settlement services are responsible for paying creditors. This causes potential problems. For example, people must trust that the payments are being made. Sometimes, debt settlement services do pay creditors, but they may wait until they have a lump sum amount. Thus, payments are late. In worse case scenarios, debt settlement services don’t pay creditors at all—even when people are continuously making monthly payments. This can result in creditors contacting people about non-payment or filing lawsuits to reclaim the money owed to them.

Cons: Pay More Money

Debt settlement services expect to be paid for their help. This can result in people paying upfront money or monthly payments. It's usually less expensive and more effective to go straight to a debt settlement attorney rather than a company to work out a debt settlement plan.

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