Credit Debt Settlement: 9 Reasons It Can Be Worth It
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Credit card debt is an unfortunate reality and a significant financial burden for thousands of Americans. It occurs for several reasons, whether due to large and unforeseen expenses, financial hardship such as job loss, or an inability to control your spending (online shopping, we’re looking at you.) While bankruptcy or letting your credit score take a hit sounds like an easier alternative, these should be your last resort.
Credit card settlement offers relief to individuals struggling with credit card debt by diminishing their overall balance, thus easing the financial strain linked to steep interest rates and minimum payments. In turn, balances are typically reduced, resulting in substantial cost savings and averting any long term effects on one’s credit score.
1. Avoid Long-Term Negative Credit Score Impact
One of the biggest consequences of not paying off your credit debt is its negative impact on your credit score. Once you are past due on payments for over 180 days, your account will be charged off, meaning the lender or creditor has written the account off as a loss and the account is closed for future charges. If this happens, your credit score will take a severe hit. Your credit score is a numerical figure that helps lenders determine your eligibility for loans like car loans, mortgages, various financial applications, and other big purchases. Consumers can check their credit score for free annually through Equifax, Experian, and TransUnion.
When your account is charged-off, it remains on your credit report for up to seven years, impacting your creditworthiness for a long time. This is enough to convince lenders that you are too much of a financial risk, impacting your ability to secure future funding for cars, mortgages, and even new credit cards. However, debt settlement can help you avoid these long-term negative credit score impacts by negotiating a more favorable payment plan or reducing the amount owed.
2. Avoid Filing for Bankruptcy
3. Stop the Relentless Calls and Mail from Creditors
When you’re behind on credit card payments, you can expect collection agencies to come after you. Collections include constant calls and mail, which can be highly stressful. Engaging the help of debt settlement experts is an effective way to negotiate with creditors and stop the collections process.
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4. Eliminate Your High-Interest Rate
Credit card debt happens when you don’t pay off your credit card in full at the end of your billing cycle or only make the minimum payment each month. From there, the balance is carried over to the next billing period and interest accrues via the annual percentage rate, or APR, a variable or fixed interest rate charged on purchases, cash advances, and balance transfers, which compound daily. This means that the interest accrues upon interest, so the longer you take to pay it off, the more you’ll owe over time. However, settling your debt allows you to negotiate a lower balance with the creditors and save far more money in the long run.
5. No Minimum Payments That Keep You Trapped in a Cycle of Debt
If your balance is high and you can’t afford to keep up each month, paying the minimum can get you by for the short term while still being able to use your card. What many don’t realize is minimum payments are a debt trap as you are really only paying a small percentage of the principal balance, in addition to some interest and fees. This is how debt eventually snowballs into a bigger problem, especially when your spending habits are out of control.
Those who only pay the minimum payment may pay the original balance several times over and still have hundreds or even thousands to spend in pure interest. However, with debt settlement, the exorbitant interest rates are eliminated and you will be able to pay off a certain sum of money in exchange for your balance being wiped clean.
6. Third Parties Will Negotiate on Your Behalf
Credit card debt settlement involves negotiating with creditors to reduce the total amount you owe on your balance. While many argue that this can be done yourself, it’s quite time-consuming, and you need a thorough understanding of complex loan contracts to be able to do this on your own. In addition to saving you time and frustration, they have established relationships with creditors, meaning they’re more likely to be able to successfully resolve your debt issues.
7. Pay Off Your Debt Faster
Credit debt settlement allows you to pay off your debt faster by working out a resolution with your creditors. Often, this means paying a lump sum payment for a percentage of what you owe. With settlements often coming in at just 50% of your original debt, you can save thousands of dollars while taking care of your debt obligations in a timely manner. Setting aside a certain amount of money each month, you’ll be able to deposit funds into a secure escrow account that will pay off your settlements. You’re encouraged to stop paying creditors at this point, as you can better prove financial hardship and obtain a better settlement.
8. Improve Your Finances Overall
Credit card debt can make you feel helpless and out of control. Fortunately, debt settlement with companies like National Debt Relief exist to help you take control of your finances and improve your overall situation. You can work with a third-party negotiator to create a manageable and personalized payment plan that enables you to get back on your feet in a shorter amount of time than you would if you took the bankruptcy route.
9. Let Professionals Take Care of It
