Debt Settlement Costs For Consumers Unable To Pay Off Debts–Can Benefits Be Gained From Settlement Agreements?

While areas of the economy continue to struggle, with reports here in July stating that the unemployment rate which was released for June was around 9.2% and for those who have been unemployed for the long-term, aspects of their personal life are continuing to suffer, particularly in the areas of finances. Many consumers have had to turn to debt relief assistance or even go to extremes such as debt settlement as a way to help them pay off what they owe on multiple debt obligations due to the fact that long-term unemployment or cutbacks in their wages may have led to an inability to meet these payment obligations.

Debt settlement can come in various packages, but it essentially is using a third-party to negotiate a settlement between a creditor and a consumer, which is an agreement for the consumer to pay less than they originally owed in return for not defaulting entirely on the debt obligation. There are benefits for consumers that can be seen through debt settlement, but when it comes to the costs that consumers pay, this particular question has various aspects that can be explored.

When we say costs we are not actually talking about how much a consumer will pay, as this will be different from one that settlement company to another, but general advice that is often given to consumers is that a good and reputable debt settlement company will be transparent about not only the costs they will charge up front but also about how the money that a consumer pays into their debt settlement program will be dispersed to various creditors.

Cost, in terms of what debt settlement will cost a consumer, focuses around the impacts that debt settlement has on their personal financial life as many consumers who are seeking out debt settlement are already in a difficult financial position, and if caution is not taken, it can the made worse. Debt settlement will usually have a negative impact on consumer’s credit score, and this can be hurtful if a particular consumer has already seen decreases in their credit score due to missed payments on other obligations.

Also, it needs to be understood that some companies refuse to settle debts with consumers and will want the full amount due to be paid, but if a consumer is unable to do this it will also go against their credit as a default, which again is something that consumers will obviously hope to avoid. The question of how consumers can handle debts that they will be unable to afford may be answered through simple credit counseling or a debt management program, where the simple monthly payments on a debt are reduced.

However, it’s often been pointed out that consumers can sometimes contact their creditors, explain their hardship situation, and they may get some form of debt relief, payment reduction, or even interest rate forgiveness from their creditor if they have been a good customer. While debt settlement does offer consumers the opportunity to alleviate themselves of financial burdens that may have been weighing them down for quite some time, it is not always optimal and, in terms of the impact it will have in a consumer’s financial life, most often debt settlement brings negative results to a consumer’s credit score so it should be only used as a last resort for those facing financial hardships.