Should I consider using a Debt Settlement Service?
Recently, companies have been advertising the opportunity to settle debts for a lesser amount. When the marketing efforts of these settlement businesses sounds too good to be true, it probably is - too good to be true. Let’s take a closer look.
Be warned! What are the real issues?
✘ Debt settlement arrangements are considered an act of bankruptcy.
✘ Debt settlements are not legally binding on your creditors. Creditors
don’t have to agree to accept less than you owe.
✘ Debt settlement is not cheap. Some companies charge fees from 14% to 18%
of the total amount of your debt, while others charge a large percentage of the
amount of debt they settle for you. For example, on $50,000 of debt you
could pay $7,000 to $9,000 in up front fees, plus the amount you need to
pay to settle with your creditors.
✘ Debt settlement is not timely. Negotiations with all your creditors
independently can take weeks or even months to complete. How will you be
able to deal with your creditors collection activities during this period? Things
could get more difficult especially if you are paying large fees to the debt
✘ Debt settlement companies are not regulated by the government.
✘ Debt settlement offers can initiate law suits and garnishments. Some
creditors have been frustrated by dealing with debt settlement companies in
the past. As a result, some creditors start their legal action immediately when
contacted by a debt settlement company.
✘ Debt settlement will negatively affect your credit score. When you fall
behind in your bills and pay late, you credit score will suffer. Settling your debt
for less than you owe can do additional damage to your credit score.
✘ Debt settlement is not monitored by anybody. Some companies are too
inexperienced to negotiate a fair deal. Some companies are total scams who
take large up front fees then disappear. Fraud is a major issue with
unregulated, unmonitored companies. Fraud could be a major problem for you
at a time when you can least afford it.