The ups and downs of debt settlement programs.
Debt settlement programs promise to help you get out of debt by paying your creditors a fraction of your debt total. While settlement services are sometimes effective, there are many risks involved in trying to settle your debt by paying less than what you owe.
For starters, debt settlement programs don’t always work – your creditors aren’t required to settle your debt. They may decide instead to take you to court, which can rack up legal bills. They may add penalties and interest to your total and send a collections agency to get the money from you.
Even when debt settlement programs are effective, they are costly. You may pay the settlement company as much as 25% of the money you saved, and you’ll likely have to pay taxes on the amount of debt forgiven.
Does debt settlement affect your credit? Absolutely. Anytime you take on debt and fail to pay, your credit rating will be damaged. How bad does debt settlement hurt credit scores? With debt settlement programs, it may take as many as seven years to repair your credit enough to take out credit cards, get a car loan, rent an apartment, or get a mortgage.
Learn more about debt settlement programs with ACCC.
If you’re thinking about debt settlement programs but you’re concerned about debt settlement credit impact, the professional credit counselors at American Consumer Credit Counseling (ACCC) can help. We’re a nonprofit organization that provides free credit counseling and low-cost financial services to consumers who are trying to find the best and fastest way out of debt. Our certified and highly trained counselors can help you understand your financial picture, as well as all the options other than debt settlement programs, for paying down your debt. They can answer questions like “How bad is debt settlement for your credit?” and help you explore the advantages and disadvantages of debt consolidation vs debt settlement and other strategies. And they can point you toward free educational materials that can help develop the financial habits that will serve you well as you move toward a debt-free future.
Debt management provides alternatives to debt settlement programs.
Many consumers who come to ACCC for free credit counseling end up choosing a debt management plan over debt settlement programs. With debt management, we’ll create a budget you can live with while you work to retire your debt, and you can preserve your credit rating by continuing to pay your creditors each month with help and support from ACCC. Our team will work with your creditors to try to reduce monthly payments, interest rates, and fees, helping you to pay down debt faster. And we’ll help you work on making the kinds of financial choices that will enable you to stay out of debt once you’ve paid off your creditors.
