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WHY YOU SHOULD NOT GO TO DEBT SETTLEMENT COMPANIES?

Published by admin on March 17, 2010

WHY YOU SHOULD NOT GO TO DEBT SETTLEMENT COMPANIES?

People suffering from the bad consequences of late payments often prefer to go for debt settlement plan in order to reduce debt faster. It is a kind of mutual understanding between creditor and debtor to resolve the issue of outstanding debt. Like other financial options, debt settlement also carries some merits and demerits. So it is important to know the pros and cons of debt settlement plan before you take a final decision. Here some drawbacks of debt settlement option are discussed to give reader a clear insight about this financial way out.

Not for Everyone so Be Conscious

First of all it must be remembered this financial option is not for everyone. Only those facing severe debt complexities can avail this opportunity not those enjoying a sound financial career.

Large Upfront Fee and Extra Charges

Secondly debt settlement companies charge substantial amount of upfront fee and sometimes charge additional monthly fee as well. Moreover these companies send no payment to creditor until you make a handsome amount there. In case of non payment of fee, company can deduct it from the amount of forgiven debt.

Poor Impact over Credit Score and Credit History

Thirdly debt settlement can adversely affect your credit score. The tags of ‘delinquent payments’, ‘settled debt’ and ‘paid by settlement’ pasted by creditor on your credit report can destroy your credit history.

Leaves no Door Open for Future Financial Assistance

Fourthly due to bad credit history your eligibility for securing other loans in future badly suffered. Debt settlement plan shuts the doors for future financial assistance in any form of loan or credit.

Pay Extra Tax

Fifthly if the amount of forgiven debt exceeds $600, then according to state law, this saving is considered as a form of income and you have to pay tax on it. Such savings are reported to Internal Revenue Service (IRS), so no one can escape from this liability.

Continuous Mental Pressure and Salary Deduction

Sixthly in case of unpaid account, you have to receive harnessing calls from creditors for payment. In worst case scenario, creditor can file a case against you in civil court which leads to garnish your bank accounts and salary.

After taking an overview about the pros and cons of debt settlement, one must be conscious about and should never go for this option until he finds it as a last resort to reduce his debt faster. If you can negotiate a settlement plan with Debt Settlement Company then why don’t you settle it for yourself without taking assistance of anyone else? Just for getting rid of 40-60% of total debt at once, you actually opt for more serious financial complication which not only destroy your credit history but also causes you to pay a substantial amount in the form of upfront fee, monthly fee, tax and interest etc.

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