Settling your credit card – A review of the pros and cons

Credit cards carry outrageously high interest rates but they can be used properly to maintain a good credit score. Despite knowing this, how many of us use credit cards in a proper way? In fact, there are very few who are even aware of what is responsible usage of credit cards. Are you too following the herd? Do you carry credit cards in your wallet only to misuse them and incur credit card debt? If answered yes and if you’re on the verge of filing bankruptcy due to the sea of debt you’re drowning in, you can opt for debt settlement. Here are the pros and cons of settling your credit card debt.

The pros of settling your credit card debt

When your accounts are being turned over to the debt collection agencies and when your monthly take-home pay is also plummeting, you must be thinking of filing bankruptcy. But remember that this is not the way out for you. You need to repay your credit card debt in part or in full and this can be done through credit card debt settlement. Here are some pros that you may consider.

1. A portion of principal is waived off: When you think that you no longer can be able to repay the entire debt amount that you owe, debt settlement helps you in the best way possible. A major portion of the debt amount will be waived off by the creditor once he comes to know the reason that has kept you from making payments.

2. Single monthly payments: After the portion of the debt is reduced by your creditor, you’re supposed to repay the remaining portion either in lump sum or through easy and affordable monthly payments. Therefore, instead of making multiple payments to multiple creditors, you just have to write a single check to the debt settlement company.

3. Bankruptcy alternative: Bankruptcy is a legal process that will drag you to the court and leave you being called a bankrupt. But if you opt for debt settlement, you can avoid the pangs of being called a bankrupt and thereby be able to settle your debt out of court.

The cons of settling your credit card debt

While the above mentioned benefits might seem to be enticing enough, you also need to know the cons before you actually take the plunge. Here are some cons that you may take into account.

1. Affects your credit score: The biggest pitfall of settling your credit card debt is that it affects your credit score. The better your score is before settling your debts, the higher will be the drop. Hence, if you wish to settle your debts, you also need to take immediate credit repair steps.

2. You owe taxes: According to Uncle Sam, any debt amount forgiven by a lender or creditor that amounts to more than $600 is taxable. Hence you owe taxes on the saved amount.

Hence, if you’re being disturbed by the debt collection agents who are calling you for recuperating the debt amount, you can certainly get help of a company to settle your debts.

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