The situation is all too familiar for all of us. Unemployment is at its all-time high and credit scores are down. Since market values of homes are also down, the equity of homeowners has practically gone down drain. Under this prevailing condition, you have practically no safety net to settle all your obligations – mortgages, credit card debts and payday loans.
There are several options that you can consider to get out of this financial mess. You may start now by adjusting your budget and try to get out of your debt hole. Of course, you can opt for bankruptcy. But this is the last thing that you should do. You can also seek the help of your lender and work out an arrangement with them if they are offering some sort of a hardship program. Finally, you can seek the professional help of a debt settlement company.
There are varying opinions regarding the use of debt settlement as there are pros and cons when it comes to this option. It is important that you explore and understand the strengths and weaknesses of such option.
Debt settlement is a pretty simple financial tool that you can use if you are having some problems paying off your debts. The general concept of debt settlement is that you agree to pay a lump sum amount which is lesser than what you actually owe your lender and your debt is considered settled. For example, if you have a $5,000 loan with your bank and you agree to “settle” it by paying in full $3,000 then your debt with the bank is fully settled. Having done this, you must be aware that this transaction would entail a negative information that will be reflected in your credit report. Incidentally, this is one of its downsides.
Before you decide to engage the services of a debt settlement company, it is important that you are fully aware of what you are getting into. You must go beyond the “nice things” that you see on the adverts of debt settlement companies. Surely, there are several downsides that you have to take into account if you decide to avail of their services.
Your Credit Rating will suffer
This is the first thing that will happen once you decide to engage the services of a debt settlement company. As soon as you avail of their services, you will immediately be requested to stop making payments and cease all communications with your bank or lender. These default payments will be reported by your lender to the credit bureaus and the negative information will be reflected in your credit report. This information will remain in your credit report for the next seven years.
Your Lender will Engage the Services of a Third Party Collection Company
This will be considered as a separate collection event and will again be included in your credit report. Needless to say, this will remain your credit files for the next seven years. You will be advised by your debt settlement company to ignore them as well. And this is where your situation can really get serious.
You will get acquainted to a Process Server
A visit by a process server means that you have been sued by the debt collection agency for non-payment of your debt. This can lead to default judgment if you choose not to respond to the summons. Again, this will be reflected in your credit report and will remain there for the next seven years.
The Court will Issue a Writ of Sequestration
Now, this could only mean two things – seizure of your assets or garnishment of your salary. Either way, this information will again be reflected in your credit files in the next seven years.