Pros and Cons of Debt Settlement

debt settlement
settle a debt by Mike Cohen under Commercial Mods and Use licence

Regrettable as it may be, people in Baltimore, Maryland often go online to search for and try to find a bankruptcy lawyer’s aid. Quite honestly, it occurs all too often. You could say that one couldn’t be safe from the experience of suffering from debts and bankruptcy because even those who are as young as students struggling with student loans and other financial matters are already agonizing about this matter.

Everyone knows that going bankrupt isn’t a pleasing experience. Aside from the fact that it’s going to hurt your credit score and that it’ll stay in your records for 7-10 years, the realization that you no longer have any assets to use freely is truly stressful. That’s why filing for bankruptcy is always just a last resort, and many residents of Baltimore would first try other ways to clear their debts before ending up there.

One of those methods is to go for debt settlement.

What is Debt Settlement?

Also known as credit settlement, this is a policy that will allow a person to pay off their debts with a certain lump-sum payment that is most likely less than what they really owe. It’s a service that third-party assemblages, such as debt settlement companies, offer by performing negotiations with your creditors in your stead and convince them to agree.

Now, this deal seems great, doesn’t it? However, you should take note that this is a real-world procedure, and you can’t expect your creditors to agree to let you pay them less than what you owe without other forms of compromises.

How Debt Settlement Works

What happens when you settle a debt first is that the third-party offering debt settlement services or debt relief solutions will enter negotiations with your creditors. They give a guarantee that you will be able to pay your debt in full amount at once, but in exchange, they should give you compensation by lowering your total payables and make the one-time payment more easily achievable for both ends.

And while this negotiation is ongoing, you may be tasked to start saving up the money you’ll need. You could set up a bank account in Baltimore that would be monitored by the third-party you hired. The negotiation may take a long time, depending on your creditors’ willingness to agree as well as to their concerns along the way. With that said, you should remember that this process is extremely delicate, and one wrong move from you or your representative can cause the tables to turn for the worse.

Debt Settlement Benefits

The first benefit you could ever get from settling debt is, as already mentioned, that you will only have to pay a smaller amount to pay off what you owe. But aside from that, the fact that it helps you avoid bankruptcy is already another advantage in itself. While a state of bankruptcy eliminates your duty to pay off your debt and lets you start anew, depending on the type you filed for, you may lose most of your other assets to rectify the situation for your creditor.

And since completing a credit settlement would mean being able to give your creditors the money they’ve been asking from you, this process also means you’ll be able to get rid of them for good. 

Debt Settlement Disadvantages

However, you should also consider the negative impacts of settling debt. Whether these disadvantages will apply to you or not mainly depends on your own situation, but all the same they shouldn’t be taken lightly.

The first one is that your creditor might not even agree to negotiate. While the risk of bankruptcy is hurtful for both sides and while most creditors would agree to avoid just that, this outcome is not exactly guaranteed. Hence, you should pick a true expert to negotiate for you, and your team should know how to give the exact offer that your creditor would find desirable.

You should also make sure that you’ll indeed be able to pay on time. If not, late fees and interest may cause you to have even more debt than you originally owe. In this case, your creditors or debt collectors in Baltimore may even resort to a lawsuit if they figure out that you can’t hold your end of the bargain.

What Does Debt Settlement Do to Your Credit

Any activity regarding your debt payments is included in monthly reports to credit bureaus. This report shows if your dues have been paid on time, late, or if your account has been closed. For a debt settlement agreement, the status that would show on your credit report when you pay your dues would be either “Settled” or “Paid Settled”. This is fairly better than “Unpaid”, but it’s also a fact that any other status aside from “Paid as Agreed” or “Paid in Full” can affect your credit score negatively.

In some cases, it’s also possible for the entire setup to damage your credit to an even greater extent, especially when your creditors don’t want to agree to the settlement in the first place. 

Is Debt Settlement Worth It

Well, that really depends. With the pros and cons mentioned above, you ought to consider and balance the effects that could be applicable to your situation. But since the disadvantages may occur mostly because of incapable representatives, hiring true professionals will likely take those risks away. So in that sense, yes, debt settlement will definitely be worth it, especially if you can’t resort to other methods of payment any longer. What’s great about debt settlement is that even if it does end up hurting your credit, you can still rebuild your score after finishing your payments. 

Can Bankruptcy Lawyers Do Debt Settlement?

There’s a huge difference between a debt settlement representative and a bankruptcy attorney, but there are lawyers who can work as both. One of the best in Baltimore when it comes to these fields is Atty. Richard Hackerman, Maryland’s most trusted. If you need a bankruptcy lawyer, you can reach us at 410-243-8800, and you can also drop by our office at 3635 Old Court Rd. Suite 208, Baltimore, MD. Our firm is renowned throughout the city as an expert in finance and legalities from bankruptcy to taxes. Give us a call for a free consultation if ever you have credit settlement concerns.

Font Resize