Is credit settlement right for you?
Are you thinking about hiring a credit settlement firm to help you get out of debt? Before you take this plunge, be sure to seek objective and professional advice from a credit counselor, as credit settlement is not always the best solution for every credit debt problem.
In credit settlement, also called debt settlement, a settlement company offers to negotiate with your creditors and get them to accept a lump sum payment that is less than what you owe. Settlement firms will often advertise that they can get you out of debt by paying just a fraction of what you owe. If you have maxed out your credit cards, have a large amount of student debt, or gotten behind on personal loans, credit settlement can sound like the perfect solution to your financial troubles.
But credit settlement is a risky proposition. Many consumers who have hired a settlement firm find themselves even more deeply in debt at the end of the process. Your creditors are not required to settle your debt and may actually take legal action against you if you stop making payments. Credit settlement companies often charge high fees and require you to put significant amounts of money in escrow before they'll even begin negotiating with your creditors – which can be difficult to do if you're already having trouble keeping up with payments. Plus, a credit settlement arrangement can leave your credit rating in a shambles.
Get professional advice on credit settlement risks from ACCC.
Before you hire a credit settlement company, it's wise to get advice from a professional credit counselor like the ones you'll find at American Consumer Credit Counseling (ACCC). As a nonprofit organization, we provide free credit counseling and low-cost debt management services. Over the past two decades, we have helped thousands of individuals and families find the best path out of debt and learn to live life debt-free. We also offer free educational materials on a wide range of financial topics. And we're always happy to answer your questions about credit settlement, as well as questions like "Where can I get a debt consolidation loan?" and "How much credit card debt is bad?"
Alternatives to credit settlement
In your free credit counseling session at ACCC, we'll show how to pay off debt with alternatives to credit settlement and walk you through the pros and cons of debt relief loans and a personal debt consolidation loan. Depending on your situation, we may recommend a debt management program with ACCC. Under this arrangement, you'll make one simple payment each month to us and we'll pay all your creditors on your behalf. We'll also seek to get reductions in interest rates and finance charges to help reduce the amount you owe and work with you to address the decisions and financial habits that helped to get you into debt in the first place.
Learn more about credit settlement with help from an ACCC credit counselor.