Last Updated on Mar 25, 2020 by James W
The term debt settlement is very common these days as it is associated with spending or consumption expenditure. The habit of spending has reached phenomenal levels driven by an unstoppable urge to acquire goods and services. In an effort to get the best products available and enjoy the best services, people tend to spend beyond their means. In several cases they spend beyond their means by taking loans, or paying through credit cards.
Consumerism is a practice that is initiated by marketers and manufacturers. Producers and sellers of goods and services in order to maximise revenue lure people to buy even to the extent of taking advances or loans. They offer discounts on credit card purchases, which in reality is a form of debt burden. This form of debt is not felt first, as the amount is not very high and the debts are within controllable limits.
Multiple loan sources are the root cause of trouble
Trouble begins when major purchases like house, car, foreign trip, and designer jewellery are made on loan. Getting a loan is not difficult in this generation of competitive selling. There are several financial institutions that offer loans with minimum documentation and lesser down payment. Buyers are misled by these offers and are tempted to buy through loans. Buying often becomes a status symbol and a way of expressing opulence.
In many cases multiple loans are taken from different sources. The aggregate loan amount could be substantial and difficult to bear. As this amount cannot be cleared in a couple of instalments, interests begin to accrue. This accrued interest is a major drawback of taking a loan. Lending companies charge interest on your initial loan amount and not on residual part.
To come out of such a situation several options are available, among which debt settlement is one. It involves paying off your entire debt amount from a single source. Instead of having to deal with multiple operators you just need to interact with one body.
Debt settlement as a respite
Debt settlement, though sounding convincing, is not a healthy practice to pay off liabilities. The greatest harm of debt settlement is the negative credit rating associated with it. For lending institutes and banks a negative credit rating would never entitle you to take further loans, or even credit card facilities. Debt settlement reviews are always associated with a negative connotation, particularly from the standpoint of a consumer. Debt settlement cases are always treated with apprehension for future negotiations. In debt settlements a third party gets involved between the lender and the consumer or borrower. This third party takes the responsibility of settling all your debts. As soon as a third party gets involved in clearing off your liabilities you stand to earn a high negative rating that is undesirable.
Debt management versus debt settlement
According to experts, a debt management plan is a much better and healthier option of coming out of debts. Under debt management only the lender and consumer is involved. Creditors would appreciate if you on your own could cope up with your liabilities and pay them off in renewed plans. For this a strict management plan is necessary which could be proposed by your lending authority or other reliable debt management companies. Under debt management plan, it is essential to study every aspect carefully and work out a solution that involves judicious spending and repayment towards outstanding. In such situations you do not lose your credit rating, and there is little possibility of getting a negative.
Thus instead of taking the easier debt settlement plan it is advisable to opt for debt management plan. The latter protects your credit rating and also teaches you to come out of difficult situations with pride.
