For anyone facing mounting debts, it can be a very overwhelming and stressful experience, especially if the debt amounts to ten or even hundreds of thousands of rands and you’ve already had to face several debt counselling reviews. But is debt settlement your best option, and what are the benefits, if any?
Debt settlement is a repayment strategy to clear unwanted debt whereby you agree to pay a significantly reduced portion of the outstanding balance of your debt to your creditor, with the remaining debt being written off. Because of debt settlement scams and consumers general lack of knowledge around it, it’s best to speak to a debt settlement advisor to obtain debt advice and agree on the best way forward. It may not be for everyone, but for some individuals there are significant benefits associated with debt settlement.
- It Stops Your Debt Problems
Debt can be truly crippling and once it has its stronghold on you, the only thing that matters is getting rid of it. The goal of debt settlement is to help individuals pay off their debts. Once they have paid their settlement they are essentially debt-free without the need for future debt consolidation loans, and end up paying far less than a typical repayment schedule would have cost, in a much shorter time frame. This will also open up new lines of credit as lenders look at the debt to income ratio and won’t lend to those swimming in debt.
- You Can Escape Bankruptcy
One of the top reasons for choosing debt settlement is to avoid having to file for bankruptcy. Bankruptcy will damage your credit and will stay on your credit report for ten years, whilst debt settlement will only remain for seven. By settling your debt with your creditor you can avoid bankruptcy and its many nasty consequences. Once your credit report time has elapsed there is no record of you having resolved your debt, meaning you won’t ever have to be confronted by it again. It also stops you being harassed by debt collectors (sometimes on a daily basis) which can be incredibly stressful.
- You Repay Your Debts In Less Time
A huge benefit of debt settlement is that you will save a fair bit of money, and this can be another one of your saving tips if you’re riddled with debt. A good debt review and settlement program can repay your debts in as little as two to four years which is quicker than your original repayment schedule would have been which can typically drag on for several more years. Even credit counselling and debt consolidation programs have longer debt repayment periods of three to five years.
The drawbacks of debt settlement are that your credit will suffer as the creditor will in effect be collecting less money than what is owed, and they may also report this to the credit bureau. This will, of course, be visible to other potential lenders which will make future loans very difficult. You may also still be liable to pay income tax on the debt amount that was written off.
As with any debt solution, it’s wise to carefully weigh up the pros and cons in your particular case. Debt settlement is not for everyone, but it can be the first step to rebuilding your credit and your path to a renewed financial security.