Should You Consider Debt Settlement?

The Federal Reserve’s latest quarterly report on household debt and credit, released on May 14, revealed that roughly 6.9% of credit card users were in serious delinquency in the first quarter of 2024. This is the highest rate since historic lows in 2021, indicating that more U.S. consumers may need help managing their credit card payments.

For those struggling with credit card debt, debt settlement may seem like an appealing solution. Debt settlement involves negotiating with creditors to settle debts for less than what is owed. While this process can help clear debts, it is important to note that debt settlement is risky and should be considered a last resort for most borrowers.

Debt settlement companies typically charge a fee of 15% to 25% of the amount owed for each successful settlement. Despite potential savings, settling debts can take two to four years and may have serious consequences, such as a decline in credit score and pressure tactics from collectors.

Financial experts recommend exploring other options to tackle overwhelming debt, such as debt management plans offered by nonprofit credit counseling agencies. These plans consolidate multiple debts into one at a lower interest rate, making it easier to pay off. Debt consolidation loans and negotiating directly with creditors are also alternatives to consider.

Ultimately, it is important for individuals to carefully weigh the risks and benefits of debt settlement before pursuing this option. Seeking advice from financial experts and exploring alternative solutions can help individuals make informed decisions about managing their credit card payments.