Consumer Debt Settlement Programs To Pay Off Debts–When Should Settlement Be Used?

Consumer debt settlement programs have been used to pay off various debts in cases where individuals may have suffered a setback in their financial life or have come into a position where meeting these various debt obligations is simply impossible and they risk defaulting on the majority of debt sources to which they owe. While many consumers feel that paying off debts through a debt settlement program can be beneficial for their personal situation, there are some advisers who may disagree with this sentiment and have offered suggestions as to how debt settlement may be beneficial for some, but could be avoided for others.

Essentially, a debt settlement plan is an agreement between a borrower and creditor, which can be instituted through a counseling agency, to pay off various debts at less than the amount that was originally owed. There have been some consumers who have contacted creditors directly, explained that they were in a financial situation that has compromised their ability to erase these debts, and rather than simply default, these individuals have worked out a plan that has allowed them to erase their debts with a particular creditor at an amount that is lower than they originally owed, when fees, interest, or a simple high principle was in place.

Typically, consumers will not get to a debt settlement program before attempting to benefit from other debt assistance plans like credit counseling or a debt management program. Credit counselors can simply review a consumer’s financial position, which can lead to suggestions, budgeting methods, and plans that are implemented in a way that allows this individual to erase debts that they owe with their current income. However, in some cases where this cannot be arranged, debt management is used to allow consumers to pay off debts in full, but at lower monthly costs to various creditors through this counseling agency. Due to the fact that this settlement will cause a consumer’s credit score to take a hit, advisers warn against turning to debt settlement programs before seeking these alternatives.

While debt settlement and may not be optimal, it is one of the only options that some consumers may have after getting in over their head with various debts, but even if a debt settlement plan is reached and a consumer pays off these debts at a lower amount than was originally owed, advisers at Bankrate.com say, “If you pay a debt settlement, find out if it shows up properly on your credit report…some creditors fail to report settlement payments to credit bureaus even though they are required by law to do so, leaving the consumer’s credit report showing their accounts as indefinitely delinquent.”

It’s understandable that there are consumers who have hit particularly hard financial times in their life, especially with unemployment as high as it happens to be at the present time, but exploring opportunities to lessen one’s debt burden and formulate repayment strategies before turning to debt settlement should be a consumer’s first step, but if debt settlement is required, consumers must be sure that their credit history reports that they have erased these debts, even if it was at an amount less than originally owed.