Pros and Cons of Negotiating a Debt Settlement With Creditors

 Posted on January 16, 2025 in Bankruptcy

Debt settlement is a way for people with a lot of unsecured debt – usually credit card debt – to negotiate a realistic repayment plan. Usually, negotiating a debt settlement means that your creditor will agree that you pay a lower sum than what you owe.

In exchange, you will agree to pay the debt back as a lump sum rather than in installments, and your creditor will "settle" the debt. Debt settlement can be a great way to wipe out much of your credit card debt, but it also comes with significant downsides. An experienced Parker County, TX debt settlement attorney can advise you on whether debt settlement is right for you. 

Pros of Negotiating a Debt Settlement

Lowering Your Debt Amount

Probably the biggest benefit of successfully negotiating a debt settlement is that it is an opportunity to lower your debt. It can be a way to deal with a large amount of credit card debt. 

Avoiding Collections

When you negotiate a debt settlement, you usually negotiate it with creditors rather than debt collectors. Even though debt collectors are bound by federal law not to harass or abuse you, some violate the law and can be more aggressive than lenders. For this reason, it might be easier to negotiate a debt settlement with your lender than to deal with debt collectors. 

Avoiding Bankruptcy

Bankruptcy can be a stressful process. If you want to avoid bankruptcy for professional reasons, perhaps because your profession frowns upon bankruptcy, or because you primarily have credit card debt and feel that a debt settlement is a better option for you, negotiating a debt settlement can be an alternative to bankruptcy. 

Cons of Negotiating a Debt Settlement 

No Guarantee of Success

Creditors are not obligated to negotiate a debt settlement and you may not get the settlement you seek, which could result in more debt from missed payments, late fees, and interest rates.

Effect On Credit Score 

Debt settlement can negatively impact your credit score. It can stay on your credit for up to seven years, along with your missed payments. 

Debt Settlement Companies

Debt settlement companies specializing in negotiating debt settlements on your behalf can often personify the saying that the "cure is worse than the disease." In other words, sometimes debt settlement companies can actually add to your financial difficulties. They may charge steep fees of up to 25 percent of the settlement amount, leaving you without much money left over from the settlement savings. Some debt settlement companies also engage in questionable practices such as making robocalls and charging large upfront fees. 

Avoiding Bankruptcy

This can also be a con to choosing debt settlement instead of bankruptcy. In many ways, bankruptcy can be a fresh financial start, and often the worst fears about bankruptcy such as that it can destroy your credit are not accurate. In some cases choosing debt settlement can take time and energy that could be used to seek a fresh start through bankruptcy. 

Contact a Fort Worth, TX Debt Settlement Attorney

If you face significant credit card debt, negotiating a debt settlement can be a good option, and the experienced Wise County, TX debt settlement attorneys at Acker Warren P.C. can help you decide if it is. Call our offices at 817-752-9033 for a complimentary consultation to speak to an attorney about finding the best solution for any financial difficulties.