Debts can quickly and unexpectedly grow out of our ability to deal with them, especially if you have a credit adjusted based on the current value of a foreign currency and the inflation hits particularly hard. And that’s without even mentioning the many things that can go wrong in a person’s life and inflict heavy financial losses. As such, debt relief, achieved in several different ways, is the best you can rely on. Typically, debt relief comes in the form of debt settlement, debt consolidation, bankruptcy or a debt management plan. The final and worst option is declaring bankruptcy. Each of these requires a different approach, but they all share some common traits that allow us to narrow down their pros and cons, which is crucial if you’re looking into the topic. So, here’s a guide to help you understand debt relief pros and cons.
The pros of debt relief
Avoiding bankruptcy
You may try the debt tsunami to get out of debt before trying a debt relief option.
You don’t need to understand debt relief down to the last detail to understand that its most significant benefit is avoiding bankruptcy. Whether in your daily or business life, bankruptcy is tough to recover from. It tanks your reliability in the eyes of nearly every investor if it’s about your business. And no one would dare claim that facing bankruptcy in your private life is easy. Starting over from zero is a stressful and downright grueling thing to go through. As such, you must acknowledge that even with the cons we will discuss later, this particular pro of debt relief makes it more than worth it.
Avoiding legal action against you
The second ‘pro’ of debt relief is being able to avoid legal action your creditor might be able to take against you. The least serious legal consequence you can suffer is being sued. And, because for most people, being taken to court over debt is pretty much the worst-case scenario, things only go downhill from there. Perhaps the worst and most demeaning experience you can go through if your creditor decides to take action against you would be the seizure of your belongings or property. Even if you are not forced to declare bankruptcy then and there, you might find yourself on the streets, homeless and without no clue what to do next. Having an alternative you can try to prevent such a scenario is, therefore, invaluable.
A structured and affordable way to settle your debts
When trying to understand debt relief, it is essential to remember that some people do not look into it because they cannot settle the debt itself. Instead, it can be difficult for them to do it in a structured and manageable way. In other words, these people have trouble tracking their credit card debts, monthly payments, etc. It is constructive to work with a professional debt management company that can guide them in the best way to do all these things. The right approach to debt relief can keep you on schedule as you work to pay back what you own without allowing you even for a second to slip into further debt due to carelessness. And that happening is more common than you think since a single missed payment can add a ton of money to your existing debt.
Legal advice and support
Of course, working with professionals who help you get out of debt does not just offer structure and stability. Even more importantly, they are there to provide invaluable advice and support. Trying to improve your finances on your own can often seem like a losing battle. All because you do not possess the proper knowledge of what you can do to make things improve. Can you apply for a debt settlement? How would you even go about doing that without relevant knowledge? Simple ignorance can make you give up on the best possible route to getting debt free. And even then, without someone supporting you throughout the process, declaring bankruptcy can seem tempting as a shortcut to eliminating most of your immediate problems. Not everyone can resist this without the right kind of safety net in their lives.
The potential for part or all of your debt to be waived
The final pro of debt relief is whether your debt is entirely or partially waived. Now, admittedly, this rarely happens. Even if your creditor can, theoretically, make your debt go away at any time, it is simply not in their interest at all to do this. So, if you are going into negotiations expecting such a thing to happen, you will most often end up disappointed. Still, it is not impossible if compelling reasons are laid out and you run into the right kind of person. That means you can find yourself in a situation where a seemingly inescapable situation is completely resolved through negotiation. One of the reasons this doesn’t happen more often is that people simply do not know it’s an option or doesn’t know how to handle negotiations. So, work with a professional on your debt relief.
The cons of debt relief
Horrible impact on your credit score
One thing you need to understand about debt relief: it will probably wreak havoc on your credit score. Looking for debt relief solutions does mean that you’d run into problems with repaying it, after all. That is not exactly a good sign for any of the companies that provide loans and mortgages since it directly signals that you might not be able to repay what you’d own them. Even if it doesn’t happen due to your inability to pay, it shows a lack of reliability which not many creditors like. Those who take out many loans and repay them have high credit scores, true. But that’s because they’ve proven to be reliable debtors.
The additional fees you may incur
Every kind of business operates to turn a profit. Businesses that help with debt relief, typically referred to as debt settlement companies are the same. They need to make some sort of profit to continue running normally. You will incur debt settlement fees on top of your original debt. Consider, too, that this comes on top of any agreements you might make to pay off your debt in the first place. Yes, debt settlement where a part or entire amount you’ve yet to pay off is waived is one option. But, more common are repayment agreements where you simply get a more lenient, yet longer, repayment plan. Which typically comes with some percentage added to your debt, too.
The added pressure of long-term repayment plans
They aren’t perfect solutions for long-term repayment plans, even if we forget about our previous point. Namely, the added pressure and stress of knowing that, this time, you mustn’t miss a single payment can be overwhelming. There’s also the fact that you can’t reliably guess what the future’s got in stock for you. Your financial situation might change, making your new repayment plan no longer viable. That is why Best Cross Country Movers experts recommend quicker repayment plans to their customers whenever possible.
Complications caused by negotiations
Negotiations are all well and good, but sometimes, they do more harm than good. After all, negotiations rarely conclude quickly. And most debt settlement companies recommend their clients stop making additional payments while the negotiations are ongoing. If negotiations break down, you would have to sort out financial messes even more significant than you were initially dealing with. And this is on top of having to pay the company you’d hired, too. Some debt settlement companies insist on forming a ‘holding fund’ where you deposit money to repay your debt. And if the negotiations break down, you might lose that money to the company.
Potential refusal to negotiate
The final cons of debt relief come from the potential that your creditor will stonewall you. You are the debtor and the one who took on the responsibility to pay back the money you borrowed. As such, they are within their right to refuse any compromise and take you to court. In that case, all the effort you’d put into researching and getting debt relief will waste time and much-needed funds.
Final comment
As you can tell, trying to understand debt relief pros and cons is a complex subject. We hope we’ve managed to explain the potential risks and benefits of the process so you can make your own decision. After all, only you can decide whether it’s something worth pursuing.
