I’ve been unemployed for a while because of this recession and am way behind on my bills. Should I try to settle my debt?
Debt settlement is one way to get out from under a mountain of bills. But it’s important to understand the pros and cons of settling debt with creditors. While debt settlement can give you some financial breathing room, it will negatively impact your credit score.
But if you’re way behind on your credit card and other loan payments, debt settlement can help. In many cases, lenders would rather work out a debt settlement than risk getting nothing if you end up filing for bankruptcy. Credit card companies and other lenders may be willing to settle your debt for 20% to 75% of what you owe. Once the debt is paid off, it will be reported to credit bureaus as settled.
Keep in mind that most creditors won’t even begin to discuss debt settlement until you are at least three to six months behind on your payments. By this point you may already have bad credit and be at risk of having accounts turned over to collection agencies.
While you may be tempted to use a debt settlement company, you may be able to negotiate a plan yourself. If successful, you avoid paying exorbitant fees to a debt settlement company or becoming the victim of a scam. Using a settlement company can even cause creditors to turn your account over to a collection agency quicker than they would have.
