Debt Settlement – Understanding Your Potential Risks
Keywords – Debt Settlement – Debt Reduction
Debt Settlement is an approach to debt reduction. But, there are some issues involved.
Put simply, debt settlement is the last resort for many debtors whereby they are permitted by mutual agreement to pay less than what they owe to the creditor.
Some debt settlement companies even promise to get you debt free in 36 months. This may sound like a dream come true to those who are in debt; an alternative to bankruptcy, but it isn’t without its major risks.
Negotiating a debt settlement would stop the bailiffs knocking on your door.
But is it worth it?
Let’s talk about some of the risks involved in debt reduction.
Your Credit Score
To begin, your credit score will plummet if you opt for the debt settlement route.
And, it isn’t the only major threat to your credit. Specific to debt settlement, this kind of negative mark on your credit report can remain for almost a decade.
If you want to consider the avenue of taking out loans and mortgages in the future, the comments regarding your debt settlement won’t do you any favours in trying to jump on the property ladder.
In your journey to debt settlement, keep in mind the additional fees you will pay for it to be a success.
And what more, even with all the extra fees, there is no promise that debt settlement will be a successful route for you to negotiate your debts.
Debt settlement agencies will charge you a percentage of the debt you have enrolled with, or alternatively the amount you have saved.
Say you go to the agency with a debt of £10,000 and they agree to settle the debt with £6000, at a fee of 25%, you are expected to pay the £6000 plus the fee applied. 25% of £10000 is £2500. Therefore, in total you are to pay £8500.
The debt percentage fee does not include the admin side of things, such as set up fees and the cost to maintain the settlement account.
The bottomline is, you are not saving much.
You will be pleased to know that there are alternatives to debt settlement. This includes Debt Consolidation and Debt Management, among other options.
Want more information? Get in touch!