Myths and Truths about Debt Settlement: Know it all

Dealing with debts is difficult; it comes with stress, anxiety, confusion, and burden. With easy access to lenders, taking loans has become easier than ever. We have more than enough means to lend money with just one click with credit cards, personal loans, payday loans, etc. This ease has led us to spend more than our means resulting in a never-ending debt cycle. Many people try to pay off their current debts by taking another loan. This practice does not reduce the debts but accumulates more interest rate. Ultimately, we fall into a never-ending debt trap. The constant struggle between managing monthly expenses and paying off debt makes it more difficult to get out of the debt trap. Even though overspending is one of the most common reasons to become prey to the debt trap, many have fallen into debt traps due to genuine financial hardships, including job loss, pay cuts, unexpected medical expenses, etc., following the global pandemic. There are many solutions to get out of debt, one such solution is debt settlement.

Now when it comes to resolving these debts, what are our options?

The piled-up debts and accruing interest rates leave us with very few options. First thing first, make a budget and stick to it. Stop using your credit cards and refrain from applying for any fresh loans to pay off your current debts. Another easy way to reduce your debt load is to borrow money from family and friends, pay your debts, and pay your friends and family later. This way, your interest rate wouldn’t add up and burden you. Apart from this, you can go for professional options like debt consolidation, negotiation, or debt settlement. Coming to exploring professional options, many doubts and myths are surrounding them. Today, let us look at a few misconceptions and clear the air around debt-settlement to make your journey toward financial freedom easier.

Myth #1: My credit score will get hit if I choose debt-settlement.

Truth: Once you stop making payments toward your loan account(s), your credit score starts to go down. Whether you are enrolled in a debt settlement program or not, your credit score will be impacted anyway if you do not make timely payments. Once you enroll in a debt settlement program, your credit score will take a hit, but it will start improving once you have resolved your debts. In a nutshell, your credit score is repairable and can be improved with positive financial behavior.

Myth #2: Building my credit score back will be difficult.

Truth: We all have our doubts, especially when we do something out of our comfort zone. This is one of the most common myths that people have about debt-settlement. Your credit score does not depend on one factor. Rebuilding the credit score will depend on your financial discipline and credit behavior. After graduating from a debt settlement program, indulging in good credit behavior will help to build your credit score back.

Myth #3: After graduating from a debt settlement program, I will face difficulties getting new loans.

Truth: Debt-settlement is a way to attain financial freedom and live a debt-free life. Your journey toward financial freedom is planned to make you financially responsible and instil financial discipline. Once you graduate from a settlement program, you can get a small consumer loan and pay it off in time. This way, you will strengthen your credit score and become eligible for more loans in the future.

Myth #4: Once I enroll in a debt settlement program, I will stop getting collection calls.

Truth: Enrolling in a debt settlement program will not stop any collection activities. While creditors’ have every right to collect the amount you owe them, they cannot practice any unlawful activities as per the Reserve Bank of India’s fair practice code for debt collections (Master Circular RBI / 2011 -12/63 DBOD. No. FSD.BC.14/24.01.011/2011/12). Read more about your rights as a debtor. In fact, we encourage you to stay in touch with your creditors to let them know that you have the intention to pay them back.

Myth #5: Anyone can settle the debt at any time.

Truth: Debt-settlement is not a cakewalk; it requires hardship and discipline. Everyone is not eligible for a debt settlement program. Only people with legit hardship, such as job loss, unavoidable medical expenses, pay cuts, etc., are eligible to be enrolled in the program. Hence unless one can prove his/ her financial hardship, one is not eligible for a debt settlement program.

If you are going through financial hardship and weighing your options to settle your debts, you can reach out to our debt-settlement experts at FREED on 0124-6663666. They will assist and advise you whether debt-settlement is a good option for you or not.