Reducing Personal Debt With Debt Settlement Programs–When Should Consumers Attempt To Settle With Creditors?

Consumers who are in need of reducing personal debts often have a variety of options that can help them better manage their personal finances and repay debt in relation to their personal income, but some have seen the severity of their personal debt situation get to a point where they are unable to meet these monthly payment obligations and, as a result, have had to turn to debt settlement. Yet, there is a certain point at which financial advisors would suggest that consumers attempt to settle their debts with creditors, but understanding the process of repaying debts, getting assistance, and personal money management may help consumers avoid personal debt settlement, which many feel should be the final step in erasing personal debt obligations.


Initially, consumers are usually prompted to either look at their finances and create a household budget that will allow them to begin the process of getting out of debt, consult a credit counseling organization that may be able to help them with organizing their finances or simply call their creditors and ask about either reduced payments or a lower interest rate, but if these options are unhelpful, a debt management plan can also be beneficial for those in a bad financial position, as this will allow a consumer to repay the total amount of debts they owe without having to settle for a smaller amount, which could do more damage to their credit score.


While a debt management program could cause problems with a consumer’s credit score as well, debt settlement will usually reflect poorly on a consumer’s credit history, and for this reason is usually the final step in the process that consumers use to repay their debts. Debt settlement is essentially an agreement between a creditor and a consumer, which is often implemented by a credit counseling organization, in which a consumer will pay less than a particular debt owed to the creditor in exchange for being clear of all of their debt to that particular person or company.


Obviously, a debt settlement program will allow the consumer to erase their debts in a timely manner, with more affordability in relation to their particular financial situation, and at a lower overall cost. However, consumers who are facing a severe difficult financial time and have unsuccessfully consulted other resources that may help them find more affordability in their payments to their creditors are those who may want to consider debt settlement. According to the National Foundation for Credit Counseling, debts paid off through a debt settlement program will show on a consumer’s credit report, which could be difficult for consumers when dealing with lenders in the future, but consumers who work with reputable credit counseling agencies and debt settlement services may find less damage done and could rebuild their credit score in a shorter period of time.


Yet, consumers must make sure they attempt to avoid settling their debt and find other cost-efficient solutions to their particular financial situation as there are, again, options that may be helpful before a consumer reaches the level where debt settlement is necessary. However, despite the fact that this settlement is not the optimal choice, consumers do stand a better chance at avoiding a great deal of damage to their credit if they do participate in a debt settlement program than simply defaulting on various unsecured debts and walking away.