Wow, that's a tough question. One I struggled with a few years ago. And one I see discussed occasionally on various blogs, and asked on various message boards, especially Yahoo Answers.
For those who don't know, debt settlement is a process where you negotiate with your creditors to pay off your credit card debts for less than you owe.
But should we even think of money in moral terms? If so, is borrowing money moral? Lending it at high interest rates? Giving credit to people who probably shouldn't have it?
There are lots of ways to think about this. So let me lay out both sides of the debate:
Debt settlement is morally WRONG:
You borrowed the money, you should pay it back. All of it. As you agreed to.
(OK, this is a good argument).
Many debt settlement companies are scams, or will rip you off.
(This is true. But there are plenty of good, honest companies out there. And even if it is true, that doesn't mean the process is morally wrong, just that some of the debt settlement programs that offer services are dishonest. So this is not really a good argument.)
Many people are looking for an easy way out.
(True. In all areas of life, not just with credit card debt. But not everyone who considers debt settlement is looking for an easy way out. People lose jobs, get hurt without health insurance, get overwhelmed and simply need help. Debt settlement is one of those options. Again, just because this is true of some people doesn't make the settlement process immoral).
Debt settlement is morally RIGHT:
If the credit card companies offer to settle for less, why not take them up on it?
(OK, this is a good argument. And ultimately the one that made the most sense to me. If their business model supports settling for less, and I really need help, why not use this option? Good argument.)
Is it good business for the credit card companies to keep offering credit and raising interest rates for those who can least afford it?
(This one bothers me. I know, we're responsible or managing our own money. But if the creditors know they shouldn't offer more credit to someone struggling, and raise their interest rates, all in name of higher profits, is that moral? Of course not. Not that this justifies anything immoral by consumers, but it seems to balance out the idea of settling a debt. So another pretty good argument, even if it is a little flawed.)
It's better for the creditors to get something than nothing.
(True. And some people would rather pay something than nothing, even if bankruptcy is a better option. Unfortunately, while the banks do build this into their business model, if too many people use debt settlement then we'll all pay more so the banks can run their business. In some ways this is a good argument, but overall is not much more than a justification.)
So there you have it. What do you think now?
Is debt settlement immoral? Or just another financial option for us consumers with too much debt consider?
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