Many consumers who must turn to a debt settlement program in order to aid them with various debts, like bad credit debt obligations, are often in a situation where they may have few opportunities left to address their financial problems. However, there are both benefits and drawbacks to debt settlement programs that can help consumers who are simply struggling with their financial situation and need some form of debt relief so as to avoid doing further damage to their credit.
Individuals who are suggested for a debt settlement program are simply in a situation where credit counseling or a debt management plan is simply not enough to address their issues as these individuals will owe a substantial amount more to various creditors than they can possibly repay. In many cases, credit counseling can offer budgeting assistance and personal financial guidance to help consumers repay what they owe with their current income, and if this proves to be problematic, a debt management plan can be arranged so that consumers can pay smaller amounts towards erasing various debts with the assistance of one of these counseling agencies.
However, if debt settlement is necessary this usually is the result of a consumer being in a very troubling situation, but settling various debts can provide aid that some distressed consumers need before they can begin the process of reestablishing a positive credit history. Typically, debt settlement will hurt a consumer’s credit score, but if bad credit debt is already present, this could create further problems. Many advisers often suggest using debt settlement as a last resort as this could lower one’s credit score further since they will be repaying less than the amount they owed initially, but when creditors see that a consumer is in a bad credit debt situation and may simply default on certain types of credit obligations they may be more willing to work with these consumers to simply get what they can on an original debt.
Basically, a debt settlement agreement will be worked out between a consumer and their creditors, usually through a debt settlement organization or credit counseling agency, and a consumer will then pay the agreed upon amounts that are due to these various credit obligations. Obviously, this is not ideal for a consumer since they are settling a debt for less than they originally owed, and again, this is seen in a negative light on one’s credit history which could lead to problems in the future for financing, borrowing, or even getting an affordable interest rate on various forms of credit.
While, again, debt settlement can provide the relief that consumers need when they are in a difficult situation, advisers often make it a point to stress that consumers who are having trouble in their personal financial life look for options before their situation becomes too dire and they must resort to settling debts through these debt settlement programs and putting themselves in a troubling financial situation even after they have found debt relief.