People who are in debt to credit card companies and have ceased making payments might get credit debt relief through credit card debt settlement. They also lack the financial means to pay for a debt management plan.
Debt settlement is reviewing your budget and determining how much money you can reasonably afford to pay into a special account (a settlement deposit account) each month in addition to your basic necessities such as rent, mortgage, food, utilities, medical costs, and so on.
While the money in your settlement deposit account grows, a credit card debt settlement firm negotiates with your creditor or creditors to reduce the amount of your debt so it can be paid with the money in your settlement deposit account.
It is an alternative to the last resort, which is bankruptcy. Everybody wants to avoid this, because of its long-term and punitive repercussions. Credit card debt settlement sounds like a great option, but like all negotiated settlements it has pros and cons.
On the plus side, credit card debt settlement normally takes 3 to 5 years to complete, and your debt will have been significantly reduced. Because it is handled by a third party, your payment arrangements (and amounts) are flexible, which means they can be changed at any time in the future if necessary.
Finally, you’ve already determined that the payments you make into your settlement deposit account are within your financial means, so you’re not being forced to do anything you can’t afford, reducing your stress.
On the downside, you may be liable for tax on the portion of your debt that you have not paid off, so you may need to find that money somewhere in your budget. Because your loan is obviously not paid in full, your credit score will suffer. Your first settlement may take up to 6 months to be paid, which means you may be subject to collection agencies bothering you.
In addition, interest and even late fines may cause your loan balance to rise during this time. Furthermore, creditors are not obligated to accept any settlement that a third party offers to negotiate on your behalf.
Before you make a decision on credit card debt settlement, be sure you understand all of the terms and the implications of what is being given by a third party. Never make a hasty decision, and never let yourself be pressured into signing a contract with a credit card debt settlement company (especially over the phone!) before you have properly reviewed the contract and conducted research on the firm to ensure it is legitimate.
Always consider all of your options, as well as the advantages and disadvantages of each, and be realistic about your funds and budget before making a decision. You want your decision to be a solution for you, not something that bites you in the backside or puts you in more debt!
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