How to Know When Debt Settlement is the Best Solution

The average U.S. household debt is somewhere around $16,883—but that doesn’t mean everyone knows how or when to address their debt. Especially for those new to the world of navigating debt, comparing the different solutions available can be downright overwhelming. Many of the names and terms sound similar, but the processes and outcomes are completely different. Some people find success with solution X, while others swear by Y. Narrowing down your chosen course of action is a matter of wading through pros and cons, searching for the solution that most closely aligns with your needs and desired outcome.

For example, you may have heard of debt settlement. But how do you know if it’s the best solution for your debt relief journey? Here are three scenarios illustrating when it’s a choice worth investigating further.

Scenario 1: You Have Been Missing Payments

Do you have a string of skipped or tardy payments to your name? Does the arrival of another credit card bill spark a sinking feeling in your stomach because you know there’s no easy way to pay it? Does even the minimum balance seem like an overly lofty goal at this point?

Although it sounds counterintuitive, this may work to your advantage when it comes to debt settlement. Why? Because creditors must believe that you’re not capable of paying your debt in full to consider negotiating with you. If you have a decent track record of paying on time, creditors will likely refuse to lower the amount you owe—leaving you right back where you started.

So, consider your collection history. Is it nearly impossible for you to keep up with payments? Do you delay payments, make partial payments or blow them off altogether more often than you make them? If so, debt settlement may be a way to get back on track.

Scenario 2: Your Credit Score Is Already Low

One of the primary consequences of pursuing debt settlement is that your credit score will take a hit. This is because negotiating necessitates withholding payment to creditors. Instead, consumers make a monthly payment into a special account so they eventually have enough to pay one lump sum to settle their debt.

If your credit is already suffering as a result of your debt, this is less worrying. As one expert responds to a reader letter for Money Management International, “Given the circumstances, however, your credit has most likely already been negatively impacted, so that’s not as much of a concern.”

Although your credit score will feel the pinch, debt settlement can give people a chance to zero-out their balances and rebuild. It really comes down to weighing the positive outcomes versus the negative. If your credit score is already low, it’s less detrimental to further affect it.

Scenario 3: You’re Drowning in Debt

If the price tag associated with your debt(s) makes you quake in your shoes, debt settlement may be a viable way to lower it. As one contributor notes for The Nest, “If you are drowning in debt, settlement can relieve your burden and help you get on with your life.”

It’s unlikely you’ll come into a windfall surpassing the amount of debt you owe, although it’s nice to dream. Debt settlement opens up the possibility of negotiating debts down to cents on the dollar. The amount can often be as low as $.40 to $.50 per dollar. Although you are still responsible for paying this amount in a lump sum, $15,000 is a lot more manageable than $30,000; or whatever your specific case may be.

These are just a few guidelines illustrating how to know when debt settlement is the best solution. The first step is seeking an evaluation, so you can input your specific circumstances.

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