When it comes to finances, especially managing debt, swimming through all the information available can be overwhelming. Each one promises to be the solution to your financial problems. Among them, debt resolution is a promising strategy worth considering. If you have ever wondered, “Is debt resolution a good idea?” this article is for you. For a strong understanding, we’ll cover debt resolution pros and cons, offering a balanced view to help you make an informed choice.

Whether you’re tackling debt as part of a new financial plan (new year’s resolutions, eh?) or are just hearing about debt resolution for the first time, understanding this strategy will provide clarity and help you take steps toward regaining control of your finances. By educating yourself on all available options, you can feel more empowered to make decisions that align with your long-term financial goals. 

A quick overview of debt resolution

The best way to understand something is through its basics. Debt resolution is a negotiation process where a creditor agrees to accept a reduced payment of less than the initial amount owed. Once agreed, this smaller amount is either paid off in full through a payment plan or in a lump sum to settle the account.  

During negotiations, creditors weigh several factors when deciding on an acceptable amount. On average, they can negotiate about 50%. The process also involves negotiating payment terms to make settling the debt affordable. 

Creditors may be open to settling debts but prefer to recover as much as possible. As such, accounts must meet specific criteria to qualify for settlement, typically at least 90 days (about three months, some up to six months) past due. Fortunately, this means it is possible to resolve debts. 

What else should I know going into this? 

Besides the above, it is important to know there are other options, and each one’s benefits differ depending on what your situation calls for.  

Debt resolution differs from debt consolidation or bankruptcy by directly negotiating with creditors to reduce the debt amount owed. While debt consolidation involves taking out a new loan to pay off existing debts, debt resolution involves settling the debt for a lower amount. Unlike bankruptcy, which discharges debts but severely affects your credit, debt resolution offers a partial settlement and avoids long-term credit damage. 

If you want to learn more about other kinds of debt relief, we have an article covering the differences between debt resolution and debt consolidation in greater detail.

Why debt resolution pros and cons? 

Settling your debt can save you future financial headaches, but it is important to figure out if debt resolution is best for you. So, to answer why, because knowledge is power, and information empowers. The better journeys come when you are fully equipped to approach them.

No matter what route you take, a clear understanding is always reassuring. Now that we’ve covered the fundamentals, here are a few debt resolution pros and cons to take into consideration:

Debt resolution pros 

For many, debt resolution offers a practical solution for people struggling with overwhelming debt. While it is far from a quick fix, it provides a clear path to financial relief and a more manageable future. 

• Financial savings 

Debt resolution allows you to settle a debt for less than the entire balance owed, a unique attribute to this kind of debt relief. This means the potential of saving money (whether minor or significant) compared to paying the full debt, especially if you are struggling with your finances. 

• Quick resolution 

This option often resolves debt faster than other methods, proving that the saying ‘time is money’ can applies here.

How exactly? By streamlining the negotiation process and avoiding lengthy court procedures that come with bankruptcy (more on that in our next point) or other debt relief methods, debt resolution can help you regain financial stability sooner.

• Avoiding bankruptcy

Debt settlement can provide a pathway to financial relief that helps you avoid the lasting consequences of filing for bankruptcy, such as severe credit damage. Besides the long-lasting stigma that comes with it, there is also the peace of mind in knowing that you have relieved yourself of the intensity of bankruptcy. 

• Negotiation leverage 

It may come as a surprise that many creditors would prefer to negotiate rather than the more dire consequences that come with accumulated unpaid debt. Here are the main things that creditors consider when approached to negotiate debt.  

1. Negotiation is preferred to legal action, which is costly and time-consuming. 
2. A partial payment is better than none at all. 
3. Unforeseen circumstances like job loss, divorce, or medical crises can snowball into debt. 

Essentially, both parties win through negotiating; creditors can recover some of the debt, and debtors get relief without the severe consequences of other options like bankruptcy. 

• Simplified payments 

Debt resolution plans set payment plans into manageable monthly payments. When done with the proper professional support, this can reduce financial stress and help you stay organized. On top of that, most programs consider additional payments like interest, so nothing escapes you in the process. 

• Expert guidance 

Enrolling in a debt resolution program gives you access to experienced professionals who understand the ins and outs of debt negotiation. They make sure the process is handled efficiently and ethically, which can improve your chances of a favorable outcome.

• Ongoing security and support 

Some debt resolution programs offer protection from lawsuits, garnishments, and more during the negotiation process. Even from the get-go, you can check off boxes like halting collection calls, positioning the middleman for comfort, etc.  

Reputable debt resolution programs offer continuous support, guiding you through the process and addressing your concerns until the program is completed successfully. 

• Flexibility and adaptability 

Since every financial situation is unique, debt resolution programs can be tailored to you, providing leniency (within reason) based on your budget and circumstances.

For example, if your financial situation improves or worsens during the process, adjustments can be made. Additionally, debts can be prioritized based on interest rates, helping you pay off the most pressing balances first. These points, among others, are considered from beginning to end so you can achieve financial freedom at a pace that suits your needs. 

• Reduced stress 

Combining these, the fundamental benefit is peace of mind. For many, debt resolution offers relief from the emotional strain of mounting debt, providing a structured plan to work toward financial freedom. Factors like flexibility, security, and support ensure a manageable path to financial recovery. 

Debt resolution cons 

With every pro comes its cons – yin and yang, balance, etc. The best decisions are the ones where you understand the possible negatives that come with the positives. 

• Credit score impact and mark 

Settling debt eliminates future financial obligations but can impact your credit score. Settled debts might be reported as “paid for less than the full balance,” which, while not ideal, is better for your credit than leaving an account unpaid. Here’s what that means:

1. Charged off accounts and settled debts  

When a debt is charged off or settled, a note is added to your credit report, which stays for seven years. However, this is not a permanent mark and does not prevent future progress. 

2. “Paid for less than full balance.”  

Settling a debt for less than the full amount owed may lower your credit score compared to accounts marked “paid in full.” While this may seem like a drawback, it is often a better alternative to leaving the debt unpaid. 

This mark is temporary, and after completing a debt resolution program, you can focus on rebuilding your credit. While debt resolution is not a quick fix, it offers a long-term solution to help those in financial hardship achieve relief from debt and regain financial stability. 

• Not all debts qualify 

Certain types of debt typically do not qualify for debt resolution programs. Before making any decisions, consult a debt relief company to understand if your debt qualifies for their program and what alternatives are available.

Debt resolution may only be suitable for some based on their circumstances. However, it offers the fastest and most economical way out of debt for many. It provides relief from financial stress and a chance to rebuild creditworthiness. 

Okay, I understand, but what now?  

Ultimately, the choice is yours. Deciding whether to enroll in a debt resolution program requires a clear understanding of its advantages and disadvantages. A debt resolution program can be a lifeline for those drowning in debt. Still, weighing any debt resolution program’s pros and cons is crucial before deciding.

For more questions about debt resolution pros and cons, contact us here.

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Disclaimer: The information provided in this article is for general informational purposes only and is not intended as legal, financial, or professional advice. Clarity Debt Resolution Inc. (“Clarity”) does not guarantee any specific outcomes, and results may vary based on individual circumstances. Clarity complies with all applicable laws, including the California Debt Settlement Services Act, and recommends consulting with an attorney or financial advisor before making any financial decisions. Clarity is not responsible for the accuracy of external links or content, and all website content is protected by copyright laws. We reserve the right to update or remove content at any time without notice.