Basics of Debt Settlement
They promise to relieve the pressure from debt by lowering your monthly payments and reducing the amount of debt you owe. Debt settlement seems to be the solution to your money woes, but there's a lot that these companies don't tell you.
Like their high administrative fees for example. Debt settlement companies charge hundreds of dollars and fees which they never tell you about, because you don't ask. Most consumers that use debt settlement as an option are so desperate for relief that they put their trust into the companies without exploring other options or digging deeper to find out how the company operates. They usually don't find out about the fees, until it's too late.
Not only do debt settlement companies charge you high fees without ever telling you, they also use your monthly payments to fund these fees before sending a single penny to your creditors. Months go by, your credit cards are reported as thirty, sixty, and ninety days late, and your credit score plummets. But this is exactly what the debt settlement companies want.
To settle your debts, these companies wait until your debts have fallen behind a few months, then they contact your creditors to negotiate a settlement. Debt settlement banks on the fact that your creditors are more willing to negotiate after you've been late for a few months. Sometimes this works, and sometimes it doesn't. If it doesn't, your creditor could end up charging off your account. A settlement hurts your credit score. A charge off hurts it even worse.
Meanwhile, you continue to send your payments to your debt settler. You think your debts are being paid. Actually, they're not. Your creditors are getting impatient. You may receive phone calls and letters from your creditors, which you have been advised to ignore. Your creditors are fully within their rights at this point to file suit or bring judgment against you. In either of these cases, you could end up paying your creditors far more than you owed to begin with.
Before you sign an agreement with a debt settlement company, make sure you have all the facts. Find out about any fees they charge and how they work with your creditors. If a company advises you to stop paying your credit cards for any amount of time, run the other way. Debt settlement can end up hurting your credit a whole lot more than it helps.
