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Hiring a Debt Settlement Company: Pros and Cons

By DebtSettlements.com Staff

As with any form of debt you cannot repay, a debt settlement has its pros and cons. For many, hiring a third party is the only way to make sure that the settlement happens. Before signing up with a professional debt settlement company, you must weigh the pros and cons.

Pros of Using a Debt Settlement Company

The biggest pro towards using a debt settlement company is the opportunity to get out of debt without entering the bankruptcy scene. A quality consumer debt settlement firm will help you settle with creditors so that you only pay a portion of what is actually owed.

Debt settlement is one of the only ways, outside of bankruptcy, to avoid paying the entire amount of your debt. It also closes out any delinquent items on your credit report, because you will be shown as “current” on those accounts. Once the debt is settled in the agreed upon way, you are no longer subject to legal action or credit collection, provided there is written proof of the settlement. A debt settlement company works out all of these details on your behalf.

Another benefit of using a debt settlement company is the fact that the company handles the actual negotiations for you. Debt settlements require a lot of back and forth between the creditor and the debtor, and a debt settlement company has extensive experience in these sometimes touchy negotiations.

Cons of Hiring a Debt Settlement Company

Debt settlement companies do not offer their services for free. You will pay a fee for the services offered, and you may not have a guaranteed settlement after paying the fees. Before deciding to use a debt settlement agency, learn what the fees are and how they will be collected.

Another con to hiring a debt settlement company is the fact that the company is doing something you can, in theory, do yourself. Every consumer has the power to contact his or her creditors, explain the situation, and negotiate new payment terms or a lower settlement balance. The difference is that many consumers lack the tenacity necessary to follow through with these negotiations.

The debt settlement company cannot control the way the debt is reported to the credit bureau. A “settled debt” mark is more damaging than a “paid in full” mark. That said, settlement is less damaging to the credit rating than bankruptcy.

Finally, you may end up being sued by your creditors when you are working with a debt settlement company if you are not careful. During the period of time when you are accumulating the amount needed for the settlement, your debt is still outstanding. Your creditors can take legal action against you. The best debt settlement companies know how to negotiate with creditors to avoid this scenario, but they cannot guarantee that it will not happen.

Remember, debt settlement gives you an option when it comes to your debts, but it is not your only option. Always weigh the pros and cons of your decisions. If you choose debt settlement, shop around to make sure that you find a debt settlement company that is reliable and ethical in its dealings.
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