Learn how to figure out if settling your debts is too good to be true - or the right solution for you!
When I was digging myself out of credit card debt after a failed business idea, I reached a point where I needed help. So I started doing some research, and came across an option I had never heard about before – you guessed it, debt settlement.
It sounded like the perfect option for me:
You can get out of debt in less than 2 years
You can pay off your bills for pennies on the dollars
All my money problems would instantly be gone!
Well, the first two points were true. But the last one – well, that one was not quite true. Luckily, I learned the truth BEFORE I got started.
These days, all the ads on TV, radio, and the Internet make debt settlement sound like the “magic cure” for debt. But it is not. At least not for everyone (it worked very well for me).
So, How Do You Figure Out If Debt Settlement Is Right For You?
If you listen to all the ads, it sounds so simple. But settling your debts is not right for everyone. Here are 5 questions to ask yourself to determine if debt settlement is right for you:
1) Are you behind on your payments?
Debt settlement is a process where the creditors allow you to pay off your bills for less than you owe. If you’re paying on time, why would they settle for less? Sure, it’s a good deal for you. But you need to be behind in your payments for settlement to be an option for you.
2) If not, are you willing to stop paying to gain the needed leverage to make debt settlement work?
You can stop paying simply to gain the leverage needed for settling. This is not the recommended way of going about it. But it can work. If you’ve been paying on time, and you can make your payments (even if it is a real struggle), you should think very carefully before you stop paying - because of #3 below!
3) Are you prepared for your credit score to take a nosedive?
By paying off your debts for less than you owe, you are getting a great deal! But it is not the deal you agreed to when you signed up for your credit card. So, between that and the fact that you must be behind in your payments, your credit will suffer. But if you owe a lot of money, or have missed any payments, that hurts your credit score too. And if you owe a real lot of money, you should probably be more focused on paying off the debt first anyway.
4) Are you aware that you will pay taxes on the savings?
Yes, you will have to pay taxes on an amount that you don’t have to pay back. So, if you have $15,000 in debt, and take a settlement for $9,000, you’ll owe taxes on $6,000. In many cases, this is still far less than what you would pay in interest in fees over the years, so don’t let this stop you.
5) Have you compared and researched at least 2 companies BEFORE signing on the dotted line?
Not all settlement companies are the same. Not only do the fees differ, but so does the customer service! There are many honest companies that will serve you well. But there are those that will rip you off. So compare companies, check out their Better Business Bureau reports, and find a quality company to help you.
So by now you should be able to see that debt settlement is NOT a “magic cure” for debt. It is NOT as simple as paying off your debts quickly for less than you owe. It is an aggressive solution that is NOT right for everyone.
You’ll need to decide for yourself which is best for you:
Continue doing what you are doing ...
Use a more traditional program like credit counseling ...
Consult with an attorney about bankruptcy ...
Use debt settlement
For me, getting out of debt was the first priority, regardless of the drawbacks of debt settlement. For you, think about your answers to the questions above very carefully before you make your decision.
Whatever you decide, DO SOMETHING!
Take action. Come up with a plan. And don’t stop until you are debt free!
