Pros and Cons of Debt Settlement Programs and Their Benefits

Consumers looking to lower their monthly payments and save on interest charges can look into several of the debt settlement programs that are available. There are several benefits to consolidating debt that can help you improve your total financial health.

Reducing Interest

Reducing your interest rate is done through simple negotiation with your various creditors. You can set up negotiations yourself, or you may arbitrate through a company that specializes in debt settlements. Successful negotiations will lead to a restructuring of your monthly payments which in turn will allow you to better manage your expenses. A simple way to explain this type of debt settlement is:

If you have three cards with interest rates at 9%, 17%, and 13% then your average rate is 13%.

After consolidation,

Those same cards would then be around 12%, 11% and 8% making your average around 10%.

While it may seem like a 3% drop in interest every month may not be much, image that you owe $10,000 total on all your cards, that minimal interest rate reduction allows you to save around three hundred dollars per month. You can take that three hundred dollars savings and put it toward a debt repayment plan.

Debt Repayment

Pairing a repayment plan with your interest reduction plan will allow you to lower your monthly payments while still enabling you to pay your balances principal. These types of plans are usually for consumers who are very deep in dept but still haven’t defaulted on any of their accounts. Creditors are often willing to work with you to allow you to save money, organize your finances and stay on a scheduled payment plan.

One Payment Plans

Most consolidation plans work through a third party company. These companies will receive one payment from you every month and forward your payment to all of your creditors. This is good for people who don’t want the added hassle of writing several checks or who have a hard time remembering who to pay and how much. Consolidation companies manage of the details for you to keep your consolidation program on track and your payments on time.

Fee Reduction and Elimination

Being late or default on payment naturally adds extra charges to your account, these charges can raise a once manageable balance to unmanageable proportions. Interest is still charged on these fees even though they aren’t purchases, which further adds to consumer debt. You can contact your creditors directly or through a debt settlement program to get the bulk of the charges removed from your account or at least reduced. This is best utilized when on a monthly one time payment schedule since most creditors only offer fee reduction or elimination once per calendar year.

Added Benefits

If you choose to work through a debt settlement company, you can give them limited power of attorney which will prevent collection companies from being able to call you. You will get more piece of mind knowing your debt is being handled without repetitive phone calls. Since you will be paying your bills on a regular schedule, your credit will also begin to improve as balances are reduced and collection marks disappear.