Is Debt Settlement an Option? |
By Arthur McCall on May 18, 2010
.jpg.aspx?width=75&height=75) Debt settlement is an option for those who are deep in debt which they are unable to pay off and choose not to pursue other options. Debt settlement usually occurs when individuals find themselves in trouble with their credit card companies, accruing debt and monthly payments which they are unable to repay. Sometimes, an individual will open another credit card in order to repay at least the monthly payments of the other, over-extended credit card(s). This process of paying one credit card off will eventually bring the individual deeper into debt, due to the interest and fees charged on both cards.
Some options to overcome this credit card debt is debt consolidation, credit counseling, or even bankruptcy. The upside of debt settlement is that your debt will often be settled for only a portion of the price owed, though it has to go to the collection agency before this occurs and will likely hurt your credit score, likely limiting your access to credit in the future.
When a credit company feels you have too much risk for them to service, they will sell your outstanding debt to a collection agency for a portion of the amount you owe because they have likely concluded that collecting a portion of a dollar is better than not collecting anything. The collection agency has the hopes of getting all of the debt you owed the credit company, though they will still net a profit if they can receive more money from you than they paid for your debt, and their wielding weapon is the ability to mangle your credit score. With this in mind, it is understandable that they do not mind settling your credit debt for less than you owe. The problem lies in that they won’t consider settling your debt until you have neglected payments, which will hurt your credit score. The idea behind debt settlement is to put off your payments while incurring the damages to your credit, and to save cash in the meantime. This way, when the collection agency eventually does see you as a great enough liability to settle your debt, you can pay on the spot with the cash you should have accumulated. While this may seem like a good solution to those with too much debt, all options should be explored before deciding on debt settlement.
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