Debt Settlement Might Not Be the Answer

Before you decide to settle your debt for less than it’s worth, realize that there are consequences to this action. It may be tempting to want to get rid of your debt overnight, but doing so can completely ruin your credit for many years. If you have an option to renegotiate the terms of the loan, or consolidating multiple loans, this might eventually be the best solution even if it adds 2 to 5 years of more debt elimination on your plate. If you choose to settle instead, that information is recorded in your credit history and it can affect your chances of getting an apartment, employment, or even financing for a home.

Consider the Long-Term Effects of Debt Strategies

Debt settlement is usually only offered after a person has ruined their credit and a creditor is wary of not getting paid at all, due to a potential bankruptcy. Collection calls are consistent and legal filings can result. If that happens, you will have negative entries in your credit history that can stay there for up to seven years. More and more employers are checking credit histories as part of their hiring practices, and this can impact your chances in the job market for a long time to come. You may get off with paying only a portion of the debt due, but that will probably come back to haunt you in higher interest rates in a variety of loans from there on afterwards, from cars to homes. Even your insurance rates can go up because of a debt settlement. If that weren’t enough, you might owe taxes on the portion of the debt that was forgiven, completely negating many of the gains you made by doing the debt settlement.

Opt To Pay It Down Regularly

Lenders are willing to work out payment plans for people during this recession. Even if you have $20,000 of debt, a lower interest rate and regular monthly payments that you can afford could help you pay it off within five years. It may not be pleasant, but it won’t harm your credit to renegotiate your debt, unless you close accounts and limits are lowered. Even then, this is far more favorable than defaulting on a portion of your debt all together.