While millions of consumers today struggle with credit card debt, each person has their own unique relationship with that debt. Some consumers may have credit card debt of $5,000 on a single credit card and may barely be able to make ends meet. Other consumers may have $20,000 or more in credit card debt, and may still be able to comfortably make minimum monthly payments. Many consumers have heard that debt settlement may help them to quickly reduce their credit card account balances and pay their debts off more quickly. This is a feasible solution for some, but it is not the best debt relief solution for others. So how do you know when debt settlement is right for you?
The Pros and Cons of Debt Settlement
Before you can fully determine if settling debts is the most beneficial solution for you to pursue, you do want to take time to learn more about its pros and cons. Through settlement, your monthly payments and total debt balances may be reduced. Some companies claim to have reduced debt balances for previous clients by 30% or more. However, there are no guarantees that you will enjoy significant results. Through the process of settlement, you may be charged high fees by the settlement company, and a negative event may be reported on your credit report. Further, any portion of debt that is settled becomes taxable income for you.
Another Form of Debt Relief
Settling debts is one form of debt relief that may provide you with benefits, but there are other solutions to consider as well. For example, you may pursue debt consolidation services. Through these services, your outstanding unsecured debts will be combined into a single loan. The new loan often has a lower interest rate, and it may have a fixed term. These features generally allow for a lower monthly payment, easier management of debts with a single monthly payment, and more rapid reduction in debt balances. Some consolidation loans require you to have equity in your home, but you may also obtain an unsecured consolidation loan through debt consolidation services companies or from your bank.
Paying Balances Off on Your Own
You may find that a debt consolidation loan or settlement is preferential for your debt reduction efforts. However, you may decide that paying off balances on your own is preferred. Many people struggle to pay balances off on their own because of the structure of credit card debt. Credit card debt generally features a high interest rate and a revolving term. For some, the minimum monthly payments may be difficult to manage, and a large portion of those payments may be applied towards interest rather than to paying down the balance owed. However, those who make an effort to decrease personal expenses and make larger than required monthly payments may find success in their efforts. In order to pay credit card balances off, it is best to stop making new charges on your accounts.
The Right Choice
It can be difficult to determine which of these options is best for you. Those who are able to make monthly payments on their own and who do not qualify for a consolidation loan may benefit from paying balances off on their own. For those who can qualify for a consolidation loan, this generally results in a faster and easier experience with debt reduction. However, you should consider calculating the total interest charges associated with a consolidation loan and with paying accounts down on your own to determine which the most affordable method is. For those who are struggling to make minimum payments, and especially for those whose credit scores have already been affected by credit card debt, negotiation and settlement may be the most beneficial solution.
About the Author: Sheryl Fabia is a financial writer for NonProfitDebtConsolidationService.com. She writes articles on debt consolidation services, non profit debt relief and various financial matters and has them published across the web.