Probably one of the biggest stresses in the life of a modern human is credit card debt.
No matter how good you are at managing your stress, this can be something that is continuously adding more stress into your life.
Debt relief can be a solution for you since it can help you get your debt cleared by forgiving a portion of the fees or repaying the loan with lower interest rates.
However, it’s a god idea to take some time to get acquainted with the pros and cons of credit card debt relief if you are considering enrolling in a program or holding personal negotiations with creditors to explain your current financial state.
On this website we are always trying to give you the best and quickest solutions, especially when it comes to managing the modern world’s stress.
Sometimes, instead of managing your stress, it’s more effective to get rid of the stressor in the first place. In this article we are going to weigh both the good and the bad sides of debt relief, so you can decide what’s best for you.
3 Biggest Pros and Cons of Credit Card Debt Relief:
1. Relief from the overwhelming amount of debt.
The obvious reason you might consider credit card debt relief is if you are unable to settle the whole amount within the stated payment period in the loan agreement.
The debt settlement program can work to your advantage in the sense that the service provider can successfully negotiate for lower interest rates or adjustments of payment plans to give you more time to repay the credit card loan according to the levels of your income streams.
2. Prevents Bankruptcy.
Bankruptcy can affect your credit score and report for over 10 years.
Getting credit card debt settlement service providers can help you to avoid bankruptcy status and the tough financial consequences that come with it.
The debt settlement firm can also prevent you from facing charges of fraudulent cases linked to unpaid and due credit card loans.
3. Reduced time to repay the credit card debt.
With a professional and skilled debt repayment service provider, you can repay your loans in less time than it was originally stipulated.
When evaluating your credit card debt relief pros and cons, you might consider the repayment time aspect.
The reduced time frames of settling the debt will give you ample time to plan your finances and clear the loans conveniently.
Without the debt settlement program, it might take you more years to repay your outstanding debt.
1. Low credit score.
The process of negotiating to settle the debt with less interest or principal amounts can affect your credit score.
Given the fact that all financial creditors are keen on their debtor’s credit score, if you pay less than what you owe them, it can be perceived as an unwillingness to settle the full amount.
The creditors might award you a low credit score that will make it difficult for you to get bank loans and car loans, mortgages, and credit cards in the future.
2. Taxes on the loan.
The Internal Revenue Service considers forgiven debt as income on your part, you might be required to pay income taxes tied to the remaining loan balance you failed to clear.
This can sometimes accumulate without your knowledge, especially if you don’t file your tax returns.
When the forgiven loan amount becomes taxable, you become vulnerable to tax related lawsuits.
If you enroll in a credit card debt relief program to get a lower debt settlement agreement, it will be wise to ensure your service provider understands the IRS regulations to prevent your scrapped off debt from becoming taxable.
3. Potential Fees.
Hiring a debt settlement service provider or firm can become costly due to the fees they might require.
Some debt settlement firms advise against making more payments to your creditor until they strike an agreement with them.
This is a very risky financial move on creditors that don’t negotiate with debt settlers and can lead you to more financial burden in terms of penalties, interest rates, and late fees.
Ultimately, you must decide whether the pros and cons of debt relief balance out for you.
Debt relief can be the right strategy in certain instances.
You just have to make sure you manage the downsides carefully.