A debt settlement plan is another solution if you’re looking for an alternative to help you manage your debts and pay them back with less stress. It is chosen by people who do not want to declare bankruptcy and want to pay back a portion of debt. The DSP may also be for those who cannot afford the payment as stated in a debt management plan and have stopped paying unsecured loans. For more about a DSP, check out the following:
What’s a debt settlement plan?
Using this strategy, you’re making a monthly payment to a deposit account. The amount is predetermined as to how much you can afford paying. Under it, you’re not making the monthly payment straight to your creditors.
You’re also going to use a credit counselor service, which will be the one to negotiate with the creditors. You do not make monthly payments to the credit card companies and the service provider negotiates with creditors for a lower repayment.
So how it works? The company will negotiate and reach a settlement with the creditors; the settlement payment will be paid using a separate deposit account.
However, you must weigh the upsides and downsides of using the debt settlement before signing any agreement with the settlement company.
Check out the following for the main benefits as well as a few factors to help you decide on knowledge and find out if it is the right service to use.
- It may help in reducing your total debt.
- A debt settlement plan may be a suitable alternative for bankruptcy.
- A longer repayment period of up to five years may be negotiated and settled.
- It lets you track your finances, plan ahead, and save the amount for the settlement.
- It offers you flexible payment arrangements, although changes can be made if you need it. You just contact the DSP service and tell them about it.
- A DSP may affect your credit profile or score.
- The creditors have the right not to accept such settlement proposals.
- The collection activity, including calls, will drastically escalate.
- You may be taxed on the debt’s portion that you failed to pay back.
- The debt balance can increase due to interests and late fees, while the settlement negotiation is ongoing.
- Usually, it takes at least six months before the first settlement happens..
Upon knowing all these things, you must also remember that agreeing to pay creditors less than the amount you owed must be avoided because it could hit your credit standing. Additionally, the taxes and fees you’re paying under the settlement program may offset what you’ve saved through paring down the debt.
That’s why you need to seek counseling for advice if it will solve your problem or not, or if a debt management may be a better option for you, especially if you have a low income to keep up with debt or when you can notice that you’re borrowing from another creditor in order to pay for another.
But then if debt settlement is the right option for you, then you should know if the creditors are willing to negotiate because they’re not required to agree to a settlement proposal. For the best results, you must study your options well and figure out if DSP is the most suitable route to take in paying off debts. Consult an expert for sound advice today!