The debt settlement is the means of negotiation that comes into play when you or a respective company is liable to pay money so that the creditors accept some portion of money against the full payment. The debt settlement company will force you to pay some amount on a monthly basis that is due until you have enough payment to pay off your creditor.The theoretical aspect
As soon as you agree to a debt settlement program, many of the settlement firms will advise you to stop making the credit card payments monthly. Taking such a step will enable you to save money. Once you have enough money, the debt settlement firm will negotiate with your credit card company. It will offer them a one-time and a large payment that will settle your debt.
It is believed that many of the debt settlement firms claim that the one-time
payment is much less that the original payment that you owe. They even state that will ensure that you no longer get bothered through endless calls from the creditor or the collection agency. But the downside is that people incur much debt, and debt settlement does not look good at all.
The reality
If you agree to the following debt settlement plan, then you would know the real picture. For instance, you have 10,000 dollars in debt and that it takes three years for you to save enough to reach a settlement. This usually amounts to the half of the amount you owe, but your total debt would have doubled.
By the time you save half of your original debt, which is 5000 dollars; the debt will become 20,000 dollars respectively. In this regard, to reach a settlement will mean that you should have half of the new amount which is 10,000 dollars.
Disadvantages
Fees can be substantially high: Several of the debt settlement companies not only charge an upfront fee but a percentage of the total debt as well.
Your credit score can get affected: It happens that the credit score gets dropped because of partial or late payments. This occurs because you do not make payment for some time as part of your debt settlement. On the other side, the financial experts believe that settling of the debt for less against the full credit card payment also hurts the credit card score considerably.
Your credit card company can sue you: The moment you stop paying credit card bill on time, the creditor can file a lawsuit against you.
Not all debt settlement companies are reliable: You need to remember that the industry is not solely run by the federal government. There are plenty of scams where the respective firms can collect money and never settle the debt payment at all.
The tax needs to be paid on the debt: A point for you to remember is that the difference between what you pay and what you owe is considered as the income by the Internal Revenue Service. This means you need to pay the taxes that come under this amount.
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