The pros and cons of credit card settlement companies.
When you have high credit card balances, you’ll likely notice ads from credit card settlement companies offering to help you wipe out your debt for pennies on the dollar. While these offers seem attractive, it’s important to understand the pros and cons of debt settlement and working with credit card settlement companies before you enter a debt settlement process.
What is credit card settlement? It’s a debt relief strategy designed to erase credit card debt by making a lump sum payment to creditors. In a credit card settlement process, consumers stop paying their monthly credit card bills, sending their accounts into arrears. Once overdue balances become large enough, credit card settlement companies contact the creditors and make an offer to settle the debt with a lump sum payment. Typically, the payment is 25% to 80% of the total amount owed.
While working with credit card settlement companies sounds great on the surface, there are significant disadvantages to consider. The fee charged by credit card settlement companies may be as much as 25% of the amount saved, and you may need to pay taxes on any forgiven debts – potentially another 25% of your savings. Creditors aren’t obligated to accept offers from credit card settlement companies – they may choose to take you to court instead, adding legal fees to your debt totals. And whether your work with credit card settlement companies is successful or not, your credit rating will be severely damaged for years to come.
Given these drawbacks, it’s important to know how to settle with credit card companies most effectively before you begin working with credit card settlement companies. That’s where American Consumer Credit Counseling (ACCC) can help.
Get advice on credit card settlement companies from ACCC.
ACCC is a nonprofit company whose mission is helping consumers find the best way out of debt. Our certified and highly trained credit counselors are available six days each week to provide free credit counseling for individuals and families. We can help you get a clear understanding of your financial situation as well as the many options available to you for paying off your debts. Taking your financial situation and financial goals into account, our credit counselors can show you how to settle credit card debt most effectively, and work with you to create a budget and implement a plan to pay down your debt over time.
Debt management: an alternative to credit card settlement companies.
For consumers who aren’t thrilled about working with credit card settlement companies, we offer a low-cost debt management plan with service fees that are among the lowest in the nation. Under a debt management plan, you’ll continue making payments to your creditors, so your credit rating won’t be damaged. But you’ll get constant support from our team that can make it easier to stay on track with your plan. And we’ll approach your creditors to seek reductions in interest rates, finance charges, and other fees, reducing the amount you owe so you can pay it off more quickly.