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Debt Settlement vs Wilful Default: What are your options?

Dealing with debt is a challenging task. It not only affects your finances but your mental health also. One needs to have discipline, control, and a strong will to get out of debt. The burgeoning interest and late fee on your credit card or loan can add more to your stress. Multiple calls from the creditors, home visits from collection agency executives, and more become overwhelming, leading to extreme stress, anxiety, and sleep loss. And that is when an individual starts looking out for options to deal with the debt. The truth is that nobody likes to get into the debt trap willingly, but your intent to get out of the debt matters the most. We come across many people who are often concerned about choosing debt settlement to resolve their debts and live a debt-free life.

So, what are the concerns about debt settlement?

Credit Score

The first thing that concerns people is their credit score. A credit score defines an individual’s financial credibility. The main reason behind this concern is the ability to get loan or credit cards in the future. Let us get to the bottom of this. Does debt settlement impact your credit score?

The answer is yes. There will be an impact on an individual’s credit score if they settle the account, though the availability to get loans in the future depends on many factors such as time-lapse between last settlement and new credit card application, type of loan/ creditor, loan amount, etc. But there is a CATCH. Debt settlement is not for everyone! It helps people burdened with debt and cannot manage to repay their debts and eventually default on their loans and repayments. Debt settlement is for people who have a financial hardship and defaulted on more than 2-3 repayments. After missing 2-3 payments, your account already goes in default, and you will see a drop in your credit score. So, if you opt for settlement, your credit score is usually already impacted due to non-payment.

Time & Efforts

Yes, it is a time-consuming process that also depends on an individual’s debt load. The foundation of debt settlement is financial discipline. Enrolling in a debt settlement program pushes an individual to instill financial discipline. Consistent efforts toward resolving debts lead to a secure financial future and a debt-free life. Getting out of the debt trap is an arduous task, but it is not impossible. First, you have to work towards becoming debt-free. The most important thing is to begin.

Many people who only pay the minimum due every month towards their credit card debt spend years repaying their credit card debt. But with debt settlement, a person who has been struggling to repay the debt and has the intention to get out of the credit card debt can opt to settle their debts. We strongly advise people not to opt for settlement if they can repay their debts. Debt settlement should be the last resort for someone who has gone through a financial hardship, wants to get out of the debt trap, and wants to rebuild their finances from scratch.

First thing first, who should choose it?

Hardship

As mentioned before, debt settlement is not for everyone. You should only opt for debt settlement if you are going through financial hardship and cannot repay your debts. The debt resolution program aims to provide debt relief measures to already struggling consumers. Financial hardship could be a medical emergency, loss of income in the form of pay cuts or job loss, and more. Such legitimate hardships can happen to anyone at any point and cause financial trouble in an individual’s life.

Kinds of Debt and Delinquency

One can settle most kinds of unsecured debts. Unsecured loans include personal loans, credit card debts, payday loans, peer-to-peer loans, education loans, and business loans (without collateral). Delinquency plays an essential role while resolving debts. Borrowing money based on their future income could turn into a problem. In case of prolonged delinquency, the bank declares your account as a non-paying asset (NPA). Once a person is delinquent, the individual will be eligible to settle the account depending on the type of account, the amount you owe, account delinquency, and the creditor.

Affordability

Last but not least, to enroll in a debt settlement program, the person must have the means to afford a debt settlement program. Therefore, after all the monthly expenses, one should save a certain amount for the debt settlement program in a Special Purpose Account.

Read more: Save vs Pay-off Debt: What is more important?

Why should one choose settlement over default?

Debt settlement should be considered the last option to resolve debts; it is almost like an insolvency alternative. Wilful default disposition on the credit report chokes all your options for future credit lines, whereas once you rebuild your credit score after settling your accounts, your options for a new credit line will start to open. In a nutshell, wilful defaults disposition closes all the doors for future credit while in case of settled disposition, you can work on rebuilding your credit score.

Need more information about debt settlement? Contact us on 0124-6663666 or visit our website to know more.

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