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Debt settlement is a debt repayment strategy that negotiates with creditors to accept partial payments as complete satisfaction of the debt. If the creditor agrees, you will pay a small portion of your outstanding balance and the remaining debt will be permanently revoked.

Reasons you can benefit from debt settlement

Outside of the debt settlement industry, few, if any, recommend debt settlement as a viable solution for dealing with debt. This is largely related to the number of debt settlement scams and consumers’ miseducation about the impact of debt settlement. For some consumers, debt settlement may have some benefits.

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Avoid bankruptcy

The biggest reason people choose debt settlement is to avoid bankruptcy. Bankruptcy is a debt solution that will accompany you throughout your life. The bankruptcy entry will remain on your credit report for 10 years, but many loan, credit card, and job applications will ask if you have ever filed for bankruptcy. If you answer "No" and the bank later discovers that you did apply for bankruptcy, you may be convicted of fraud. In the case of employment, you may lose your job.

If handled properly, resolving debts with creditors can help you avoid filing for bankruptcy and dealing with the consequences of bankruptcy.

Debt settlement will only be kept on your credit report for seven years. There is no public record of your paid off debts, so once your settled account reaches the credit report deadline, you no longer need to deal with settlement issues. 1

Get rid of a heavy debt burden

The goal of debt settlement is not to get rid of the burden of creditors by paying only part of your accumulated debt. Therefore, it is unwise to accumulate a large amount of credit card debt in order to solve all the problems.

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Debt settlement may help you if you are legally having trouble paying back what you are borrowing. Negotiating and paying the settlement is basically a quicker and cheaper debt forgiveness than if you were trying to repay your debt on a regular repayment schedule.

Comparing debt settlement and bankruptcy, creditors may not get much from you even if you file for bankruptcy in Chapter 13. If you file for Chapter 7 Bankruptcy, they may not get anything. 2 Creditors know this and will accept settlement proposals from some consumers.

Repay your debts in a shorter time

In a good debt settlement plan, you will repay the debt in two to four years. This is much less time than you usually spend on repaying debts (if you are considering debt settlement, it may not be an option). Even debt consolidation, Chapter 13 bankruptcy and credit counseling have a debt repayment period of 3 to 5 years. 3 If you stick to the original repayment schedule, it may take decades to pay off the debt.

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Disadvantages of debt settlement

Of course, debt settlement will have a negative impact. There is no guarantee that the creditors agree to the settlement proposal, and you may receive a smaller discount than expected, or none at all. In addition, during this period, your credit will be affected (if not already), and you may be taxed on the amount of the cancelled debt. 4 As with any debt solution, you must weigh the downsides and benefits of debt settlement. However, in all cases, when your debt reaches unmanageable levels,

However, in all cases, when your debt reaches an unmanageable level, if you are eligible for compound interest, it is difficult not to accept debt settlement.