The Pros and Cons of Debt Relief Programs

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Trying to get out from under debt can be very difficult, especially if you owe a large amount of money. If you’re struggling to pay off your debt, and it seems like you’re going to have to deal with creditors for the rest of your life, you should consider applying for a debt relief program.

With the right program, you may be able to pay off your debt, get creditors off your back, and start enjoying your life again. Here are a few debt relief program pros and cons that you should consider if you’re looking for a solution to get rid of your debt once and for all.

The Pros and Cons of Debt Relief Programs

Debt Relief Program Options

When you’re looking for a debt relief program, there are two basic options that you can choose:

  • Debt consolidation.
  • Debt settlement.

While both types of programs can help you resolve outstanding debt, there are some differences that you should consider to make sure you choose the right solution for you.

If you’re dealing with a very large amount of debt, then settlement is probably the better option for you. With a debt settlement program, you’ll negotiate with your creditors so that you can clear your debt by paying an amount that’s less than what you actually owe. Generally, you will use debt settlement if you owe money to only one creditor. It may be possible, however, to settle your debt with multiple creditors.

Choosing debt consolidation can be a good decision if you owe money to multiple creditors. With debt consolidation, you’ll be able to combine your various debts, which you can then pay off by taking out a loan. Hopefully, the loan that you take out to pay your consolidated debt will feature a low interest rate and affordable monthly payments.

Debt Consolidation Pros and Cons

To make it easier to decide what type of debt relief program best meets your needs, let’s take a look at some of the advantages and disadvantages of debt consolidation. First, and most importantly, debt consolidation is generally the best option if you have a large volume of debt with which you’re having trouble dealing.

Typically, people that owe money on several credit cards will choose debt consolidation. Once the consolidation plan is accepted, you’ll be dealing with one lender instead of multiple creditors, which makes the process of paying off your debt considerably easier. Debt consolidation is also beneficial because it’s possible you will be able to save a little money, especially if the loan you take out for your debt features an attractive interest rate.

The biggest and most obvious drawback of debt consolidation is that you won’t actually be getting any relief from your debt. While it’s true that you’ll no longer have multiple creditors hounding you for payments, you’ll still have to pay off the exact same amount of money as you owed before. Consolidation does not reduce your debt in any way, it only combines it so that you’re only making payments to one source.

Advantages of Debt Settlement

If you want actual relief from your outstanding debt, then debt settlement is the best option for you. Debt settlement is the only solution for lowering your debt, and in some cases, you may end up paying considerably less than you actually owe.

Other than reducing how much you’ll have to pay your creditors, the most enticing benefit of debt settlement is that it allows you to get out from under debt much quicker than would otherwise be possible. Because your debt will be lower, it will be easier to pay, meaning you can enjoy a debt-free future sooner rather than later.

Another advantage of debt settlement is that you’ll be able to say goodbye to phone calls from creditors. All debts over $1,000, including medical debts, can be included in your settlement plan. By resolving all of these debts, you’ll no longer have to worry every time that your phone rings.

Debt Settlement Disadvantages

Now that you know about some of the reasons that debt settlement may be a good choice, it’s time to examine a few of the negatives of this form of debt relief. A big drawback of debt settlement is that you shouldn’t begin the process until you’ve gone many months without making a debt payment. Obviously, failing to make debt payments will damage your credit score, which means you’ll need to rebuild your score after you have settled and paid the debt.

Debt settlement programs can also result in negative tax implications. For instance, if you owe $30,000 and your settlement allows you to pay only half of that, you may have to pay tax on the forgiven $15,000.

Another problem with debt settlement is that there is no guarantee that the process will work out as you planned. As mentioned, you’ll need to stop making payments to your creditors for six months before proposing a settlement. At the end of that six months, it’s entirely possible that your creditor will reject your offer, meaning your credit score will suffer and you’ll still be liable for the same amount of debt.

Debt settlement requires that you have the money available to pay your debt as soon as the settlement is accepted, which can be very difficult. If your creditor agrees to settle your $30,000 of debt for $15,000, you would need to pay that $15,000 right away. If you are unable to do so, your creditor may withdraw the settlement.

Lastly, you can only use a debt settlement program to clear unsecured debts, which include:

  • Credit card debts.
  • Medical bills.
  • Personal loans and lines of credit.

If you’re struggling to pay off an auto loan or mortgage, debt settlement is not an option.

Are you ready to get out from your debt once and for all? If so, Solvable is here to help. Our convenient reviews of debt relief companies can help you choose the option that will make it easy for you to pay off your debt so that you can look forward to the future.

 

Jill Bridges
Author:
Jill Bridges

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