One day, you suddenly realized that you are heavily in debt. All your credit cards are used to the maximum limit and the creditors keep calling to remind you on your overdue payments. You are considering whether you want to go for a debt settlement or bankruptcy. Sure, debt settlement sounds good because you do not need to go through the lengthy legal process if you declare bankruptcy, but before you decide, you need to spend a bit of time to weigh the pros and cons of having a debt settlement.
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Listed below are some pros and cons of so that you can carefully decide your next steps.
Pros:
1. The amount that you need to pay is less that you actually owe
Usually you would only need to pay around 40-60% of the amount. This would in turn help you save on the interest.
2. Only one payment per month
If you decide to consolidate all your loans, it means that you only need to make one payment every month. Since you are dealing with one creditor now, you do not need to worry about calls from other creditors anymore.
3. You do not need to declare bankruptcy
Declaring bankruptcy can be a long and frustrating process. In this case, debt settlement is a much easier option.
4. No attorneys involved
You could perform the whole process of debt settlement yourself. Take note that you need to learn as much as you could and familiarize yourself on the procedure.
Cons:
1. It would affect your credit score
Debt settlement would naturally lower your credit score. However, if you are already behind schedule of your payment, your credit score is already low.
2. Debt settlement would show as "pay by settlement" in your credit report
Your credit report would show "pay by settlement", instead of paid in full. This would certainly affect your application for loans in the future.
3. Your savings might be taxable
Any savings incurred as a result of paying less of the actual amount of your debt would be considered as forgiven debt, and is taxable if the forgiven debt is more than $600.
4. You cannot choose which loan to pay first
If you decide to consolidate all your loans into a single loan, you would not be able to choose to pay the loan with highest interest rate first.
By weighing the pros and cons stated above, you can now decide on the best option for you to get out of your debt. Choose carefully and wisely so that you would not only have financial freedom but also freedom of mind.
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