Disadvantages Of Debt Settlements

Disadvantages of debt settlement are not necessarily clear-cut and, the facts can be confusing. Some of the disadvantages apply only to certain people in certain circumstances. For the person wondering about the advantages of debt settlements, bankruptcy, or any other route to peace of mind, he must thoroughly research all of his avenues and determine which avenue best fits his financial picture. The biggest disadvantages of debt settlements revolve around negative credit ratings because using this type of loan process will show on a report for up to ten years. Some experts believe that potential creditors will view this very negatively, thus making it extremely difficult for the debtor to obtain reasonable credit terms during that time. However, other experts dispute those claims. They think that potential creditors will applaud the debtor's efforts to manage money wisely and consider that a better alternative to filing for bankruptcy.Debt settlement, however, is not a good option for people who are only a month or two behind on their payments. These financial problems can usually be resolved with tightening the belt and curbing spending. Rather, it is geared toward individuals who are many months behind and simply cannot make their payments. In fact, some companies only accept clients with debts of at least $10,000. When analyzing the disadvantages of debt settlements, a person must weigh the damage to his rating with the damage that late and missing payments have made and will continue to cause. Another consideration is that creditors may continue to call and send harassing collection letters throughout the negotiation process. They could even garnish the debtor's wages. These disadvantages of debt settlement are significant; however, many people choose to live with them, knowing that they are short-term hassles. One of the often-overlooked disadvantages is that the debtor may owe income tax on what is owed after the settlement. The creditor may send a 100-C form at the end of the year, and the debtor would be required to report the amount listed as income.

When weighing the disadvantages, it is important to consider both the short- and long-term consequences. The relief of having debts settled can feel refreshing when compared to the anxiety of worrying about debts. However, one of the disadvantages of debt settlement is that the relief will not be long-lasting if the debtor does not address the issues that brought about his debt in the first place. As with any financial decision, it is wise to consult godly wisdom when considering both the advantages and disadvantages of debt settlements. Pray about your situation knowing that God cares about these details of your life. Claim this verse: "Casting all your care upon him; for he careth for you". (1 Peter 5:7) That is the real solution to financial problems.

Source: http://www.christianet.com/debtsettlement/disadvantagesdebtsettlements.htm

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