Can Debt Settlement SaveYou Money?
When you aresettling outstanding debts, saving money may not be the first thing on yourmind. However, if you explore the many alternatives for settling debts, you mayactually find you can save money in two different ways.
Exploring Your Debt Options
Debtsettlement is becoming a more popular choice for eliminating the burden ofdebt. A third-party agency will work with you by dealing directly with yourcreditors to lower the outstanding balances you owe, make arrangements for morereasonable debt payoffs, and potentially even lower the amount of interest youpay on the balance due and eliminate penalties altogether.
There areother options for debt relief including debt consolidation programs, personalloans, or payment in full of the debts owed. There is no one-size-fits-allsolution for debt elimination so it is important to explore the optionsavailable to you based on your financial situation and payment capabilities.
Saving Cash with Debt Settlement
As mentioned,there are two ways to save money during a debt settlement arrangement. First, debtsettlements may involve new arrangements for payments or the agreement to paydebts for a lesser amount than what is owed in one lump sum. You can essentialsave a decent percentage of money settling the debt for less than what is owed.Ideally you should pay off as much of the debt as you can afford sincesettlements are not meant to be an easy way out but if the creditor is willingto accept less than what you owe, the money you save can be used effectivelyfor eliminating other debts.
The downsideto the saving money part of this arrangement is twofold – depending on theamount of money forgiven in your debt, you may be required to pay taxes whatyou didn’t have to pay. You’ll have to check with the IRS for the exactrequirements involved with debt forgiveness. The other downside of saving moneyby settling debts is the stigma associated with not making good on debtobligations. Your agreement to settle for less than owed will be noted on yourcredit reports and creditors will be clued in as to your history of notfulfilling debt obligations for at least seven years to come.
While thedownside to settling debts is something to consider, there is also another waydebt settlement saves you money. This part of the settlement process actuallycan work in your favor. When you eliminate a debt, even if some of it isforgiven, you are saving money on the amount of penalties and interest thatwould continue to accrue as long as the debt was outstanding. By taking care ofyour debt obligations as soon as you can afford to pay, you take out theadditional expenses of extra costs associated with the debts. If you eliminateseveral debts through a settlement arrangement, you save multiple times.
Making Savings Work for You
As a debtrelief strategy, once you have paid off a percentage of your debt owed, youshould consider taking the amount you saved on the overall debt and depositingit into a savings account that earns a high interest rate. Automate a specificamount of payment from each of your paychecks to be deposited into the account,even if it is just $25 bi-weekly. Allow the funds to build up towardseliminating additional debts not allowed to be settled outright or keep thefunds to the side as an emergency fund to get your finances back on track.
Be Cautious with Settlement Companies
At the sametime you can save money using the debt settlement strategies of a third-partyagency, you can also be taken for a financial ride that is anything butenjoyable. Some agencies unfortunately are not operating in the best interestof their clients and are only out to take the money and run. Unless you do yourhomework and research the specific companies that are legitimate, not only doyou risk losing cash upfront, you remain stick deep in debt with no funds tosettle the balances you owe.
If you areconsidering debt settlement, be sure to meet first with the counselor and besure they are knowledgeable and experienced in handling legitimate debtsettlements with your creditors. They should be willing to work with you andyour budget to get you back on financial track and keep you debt-free movingforward. If their only interest is in your payment of their fees, considerfinding someone else to help or negotiating the debts you owe creditors on yourown.
Frank Collins is a seasoned writer with strong background inboth personal and business finance. You can read more of his articles aboutdebt relief options, credit counseling and related services at the debt settlement blog.
