Debt settlement program
The risks of a debt settlement program.
At first glance, a debt settlement program can seem like a viable option for people who find themselves deeply in debt. But before you jump into a debt settlement program, it's essential to get some debt settlement advice from a financial professional or credit counselor. That's because many debt settlement services are not exactly what they seem to be.
A debt settlement program works similar to this: you stop paying your creditors and pay a debt settlement company instead. After a number of months, when your creditors are getting anxious to be paid, the debt settlement company contacts them to negotiate a settlement – ideally for something less than you actually owe. But there's no guarantee your creditors will accept a settlement. And when you stop making payments to them, your credit rating can take a dive. On top of that, you may have to pay taxes on the settlement, in addition to the hefty fees that a debt settlement program will charge you. In the end, it's not unusual for a debt settlement program to actually leave you deeper in debt.
Consult ACCC for advice about a debt settlement program.
Before you enroll in a debt settlement program, consult with a credit counselor from American Consumer Credit Counseling (ACCC). We're a non-profit organization dedicated to helping people take stock of their finances, evaluate their options, and make a plan to get out of debt.
Our credit counseling services are free. You can meet with a counselor by phone, or in person to talk about your situation and learn about all the options for paying off debt. Our highly trained and certified counselors can offer advice on a debt settlement program, compare the pros and cons of debt consolidation vs. debt settlement, offer tips on dealing with debt recovery or collections agencies, and help you choose the strategy for paying off debt that best suits you.
A debt management or debt settlement program: which one is right for you?
Depending on your financial situation, we may suggest a debt management program over debt settlement solutions as the best way to settle credit card debt. The strategies are similar in that you make payments to one company instead of multiple creditors. But rather than withholding payments to force a settlement, a debt management company pays your creditors on a timely basis, while working to secure reduced interest rates, lower finance charges, and an end to late fees and over-limit fees. In this way, a debt management program helps to lower the amount you owe without trashing your credit rating or putting you deeper in debt. And when you use a non-profit debt management company like ACCC, it will cost you far less than a debt settlement program.