Consumer Debt Settlement Programs That Help Pay Off Multiple Debts–What Consumers Must Consider Before Settlement

Consumer debt settlement programs have been one way that some individuals have been able to escape multiple personal debts when they have found themselves in a troubled financial position where meeting these obligations has simply not been an option due to factors that may have either created a high amount of debt in their life or cutbacks in their personal income, but there are certain considerations that must be made before a consumer enters into a debt settlement agreement.

Obviously, when consumers who are troubled by debt, as a result of their own personal practices or factors like downsizing and unemployment, advertisements that state debt can be cleared for minimal costs often cause many to feel that this form of debt relief is their best option to avoid further financial distress and problems in their financial life. However, the process that consumers may go through to find debt relief typically only ends with debt settlement and, according to many financial gurus, debt settlement should not be the primary goal of a consumer in a troubled financial position.

According to the National Foundation for Credit Counseling, debt settlement may be known also as debt negotiation, but there are some companies who simply market debt settlement as a generic debt relief plan. Typically, debt settlement works by a particular agency or counseling service talking with a consumer’s creditors to negotiate a lower value for debt obligations that can be met and allow a consumer to be forgiven of the remaining balance. There are some consumers who may talk directly with creditors and explain that they may be unable to pay the total sum of their particular obligation, but again, these debt settlement programs do offer options from professional financial advisors who may have had experience in this area.

However, since this settlement is essentially paying off debts for less than the original amount owed, it will have adverse affects on a consumer’s credit score and decreases in not only a consumer’s score will be present but it will be a negative mark on a consumer’s credit history also. For this reason, consumers usually turn to credit counseling first, as there may be simple solutions or budgeting habits that could be beneficial in helping consumers erase their debt, but a debt management program might also be implemented so that lower payments may be made on a monthly basis but the total, original amount that is owed to a creditor will eventually be met.

Since debt settlement can have adverse effects on a consumer’s credit history, it shouldn’t be one of the first considerations for a consumer struggling with debt, but if a situation has arisen where a consumer has become overwhelmed with their debt as a result of job loss and not poor financial practices and spending beyond their means to repay, this may factor into a future lender’s decision when they see that certain debts were negotiated and paid through a settlement program.

It’s understandable that consumers are still seeing financial problems in their personal life as a result of the recession and widespread difficulties in the job and housing market, but turning to options like nonprofit credit counseling or even a debt management plan should first be considered before debt management. Yet, no matter what options a consumer eventually ends up using to help them find debt relief, researching reputable credit counseling agencies or debt settlement organizations must be carefully done by a consumer as there are fraudulent organizations that may attempt to take advantage of someone in a bad credit position and this will, obviously, simply lead to more financial distress in an already troubling situation.