The Pros and Cons of Debt Settlement Agreements

If you have a high amount of debt that you are struggling to repay, you may have already considered debt settlement. A debt settlement agreement is negotiated with your creditors to help you pay off unsecured debt. The creditor agrees to accept an amount lower than the total amount you owe, while you agree to pay the lower amount, usually in one lump sum. A debt settlement agreement is also quicker than other alternatives, such as bankruptcy or a debt lawsuit.
While a debt settlement agreement sounds very attractive to many borrowers, there are important things to know before entering into negotiations. Below, our Orlando debt settlement and relief attorney explains the pros and cons of these agreements.
Debt Settlement Agreements: The Pros
There are many advantages for borrowers who successfully negotiate a debt settlement agreement. These include:
- Pay less than you owe: Again, a debt settlement agreement may allow you to repay less than what you owe. In fact, debt settlement agreements often allow borrowers to save thousands of dollars while eliminating their debt at the same time.
- Avoid bankruptcy: Bankruptcy provides a clean financial slate for many people. However, it should always be a last resort and a debt settlement agreement can help you avoid the bankruptcy process.
- A faster option: Borrowers who are struggling with debt often want to resolve the issue as quickly as possible. There are many options that will allow you to do this, including credit counseling or agreeing to a repayment plan. However, a debt settlement agreement can be negotiated much faster and will eliminate your debt quicker.
Debt Settlement Agreements: The Cons
Although debt settlement agreements have many benefits, they also have some drawbacks. It is important that all borrowers understand what these are. They include:
- Impact on credit score: If you have reached the point of negotiating a debt settlement agreement, the debt has likely already been reported to the credit bureaus. When it is settled, the creditor will report it as ‘partial payment’ or ‘settled’. Both of these can have a negative impact on your credit score.
- High fees: Not all debt settlement attorneys and companies charge high fees for their services, but many do. Before working with any professional to represent you in a debt settlement agreement, it is important to understand the fees they will charge so you are not surprised with high costs in the future.
- Tax implications: Any time debt is forgiven, the Internal Revenue Service (IRS) classifies it as taxable income. While you may save money in the settlement process, it is important to consider how it will affect your tax return.
Our Debt Settlement and Relief Attorney in Orlando Can Help with Your Agreement
Debt settlements have many benefits for borrowers struggling to pay high amounts of debt. However, it is critical that you work with the right Orlando debt settlement and relief attorney to ensure you reap all the possible benefits. At Florida Law Advisers, P.A., our experienced attorney can guide you through the process and negotiate on your behalf so you obtain the most favorable outcome possible. Call us now at 1 (800) 990-7763 or contact us online to schedule a consultation and to get the legal help you need.
Source:
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics