What you need to know about debt settlement companies.
Debt settlement companies make some bold promises, often boasting in their advertisements that they can help you settle your debt for just pennies on each dollar you owe. But before you choose to work with a settlement company, it’s wise to get some objective opinions about debt settlement companies and to better understand the pros and cons of debt settlement versus other strategies for paying off debt.
How debt settlement companies operate.
To help you get out of debt, debt settlement companies will advise you to stop paying your bills to creditors. Instead, you’ll pay money each month to a savings account managed by the settlement company. After several months, when your accounts are significantly overdue, the settlement agency will make a debt settlement offer to each of your creditors, offering to pay off your debt with a lump-sum payment from your savings account. Ideally, the amount you’ll pay is significantly less than the amount you owe. Creditors may accept the offer if they believe it is their best option for getting some money from you.
If the creditor accepts your offer, you’ll pay a fee to the debt settlement companies – usually 25% of the amount you saved. You’ll also pay taxes on any amount that was forgiven by your creditors. But if the offer from the debt settlement companies is not accepted, your creditors may choose to turn over your account to a collections agency, which can be a nightmare. Or they may sue you for the amount you owe plus interest, penalties, and legal expenses, adding even more to your debts.
How does debt settlement affect your credit and is debt settlement bad for your overall finances? Well, whether your debt settlement offer is accepted or not, the fact that you have stopped paying your bills for months will significantly damage your credit for years. You may not be able to get a credit card, take out a car loan, rent an apartment, or buy a house for years to come. That’s why it’s important to understand the potential risks of debt settlement before talking with debt settlement companies.
Get advice about debt settlement companies from ACCC.
At American Consumer Credit Counseling (ACCC), we offer free credit counseling and low-cost financial services designed to help you get out of debt quickly and plan to live debt-free in the future. As a nonprofit organization, we offer objective advice about debt settlement companies and debt settlement vs bankruptcy vs. debt consolidation. At your free credit counseling session, our professionally certified counselors can help you better understand how debt settlement companies work, and what other options you have available to you for managing your debt. Take this first step in your journey out of debt – contact us today for a free counseling session in person or by phone.