You are in extreme debt and find it difficult to make monthly payments. In such a scenario, you have two options available either you chose hardship or consider debt re-structuring & settlement. Both can help you come out of debts but one has more advantage than other.
When the economy is distrait, and the scenario is such that there us lot of downsizing and deployment going on, creditors agree to something called as Re-Structuring. This agreement alters the term of payment which may either be reduced monthly payment, reduced interest rate, etc. This option is better than debt settlement and can be considered if you feel that with altered payment plans you will be able to clear your loan.
Debt Settlement is an option that enables the debtors to pay less than what they actually borrowed. Creditors, usually, do not initiate for debt settlement and agree to the same. It’s either the debtors or the debt settlement company that initiates the settlement.
A Financial Pitfall:
Debt Settlement Programs have a bad name in the credit world and they are mainly considered as a trap because they tend to have a bad impact on your credit report. These programs hardly benefit anybody, but the settlement agencies.Debt settlement companies which are popularly known as debt counsellor promise to settle your debts for a small amount. However, the fact remains these settlements demand an enormous amount of savings from the customers depending on the loan due. So if you do not have an income to save, then you will not be able to consider debt settlement as one of the options.
Effects on Credit Report:
Debt re-Structuring & Settlement both have an adverse effect on your credit report. If you are opting for re-structuring, then you will have to face hardship for a certain period of time but once cleared there will be a positive impact on your credit report.On the contrary, if you are opting for debt-settlement then you will be relieved when it comes to paying currently, but you will face a problem later in future. Lenders will hesitate to pay you because of debt settlement option that you choose for currently.
So, if you feel that with time you will be able to clear your debts, then opt for debt re-structuring your agreement rather than opting for debt settlement because the after effects of later are graver than re-structuring.