Should You Consider Debt Settlement?

Everyone feels the pressure when debt starts to rack up all around them. With bills filling the mailbox, a bank account constantly threatening overdraft, and the looming guillotine that sits ready to drop upon your wallet, it’s hard not to think about any way possible to get out of all that crushing debt. There are multiple ways to try to get out: repayment plans, debt consolidation, and debt management programs. However, some private, for-profit companies offer debt settlement.

Debt settlement differs from consolidation and management as it is a way for a company to negotiate with your lenders and creditors to pay off a debt for less than what you owe. This is usually done through a lump sum payment that is saved up through an account, usually through the company, and it is used to pay off all your creditors. But be aware of the risks involved with debt settlement.

For one, the company will still charge you money for services and fees to get your debt lowered, and with all the included costs, it might not even be worth it as you might end up paying the same amount, just split between this private company and the creditors. Another involved risk is that you may end up lowering your credit score as most debt settlement and relief companies will tell you to stop making payments towards your debts. This means that you’ll start to accrue late payments with these lines of credit which end up hurting your credit score and history and can drop your credit score up to 90 points. A lower credit score will be detrimental to you in the long run. Not only that, but this process of debt relief can also take years to complete.

 

Here are some things to consider when you talk to a debt settlement company:

• What are the fees and costs associated with lowering your debt? Will you truly be saving money in the end after all the work is done?
• How long will debt relief negotiations take in order to get rid of all your debt?
• Will your credit score heavily drop over the course of the program or service?
• Can the company successfully negotiate on your behalf?

 

Debt settlement is a risky prospect as the company has no guarantee of successfully getting your lenders and creditors to lower the debt you may owe. If the company fails to get a lower amount, you may still end up owing the company for fees and services, and you’ll be left in a bigger hole than you were in before. Most financial companies that offer debt relief, credit repair, and such cannot legally offer any guarantees when it comes to your money, debt, or credit score.

Creditors may even sell off your debt to collectors during the whole process and you may end up getting calls from debt collectors and agencies. It can get even worse when a creditor or collection agency starts litigation processes to start a suit against you. You may get sued by these creditors for repayment and that will cause more problems.

In the end, debt settlement companies are a big risk. If you are considering a debt settlement company, it’s important to research their abilities and what other people think of the company to make sure the company can help you. Keep an eye out for the following red flags:

• Making any sort of guarantees of lowering your debt.
• Asks for upfront costs without providing any services first such as collecting fees before the settlement.
• Trying to aggressively get you into their program without going over your full financial situation.
• Say anything about a “government program” of any kind whatsoever.
• Does not explain any consequences of cutting ties with your creditor or stopping all payments.
• Tells you to ignore any lawsuit put against you.

Remember to consider a debt settlement company as a last resort and try to go through other avenues and options to help pay off your debts. Most furnishers and creditors will easily negotiate with you, the customer, for a way to settle your debts, so there may be no need to use a third-party company.

If you have any questions, feel free to give us a call at 877-212-2450!

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