Debt can be overwhelming and make life very stressful. If you find that your debt is surpassing your ability to manage it, you may be considering partnering with a debt settlement company to alleviate your financial woes.
Debt settlement companies claim that they can help reduce and even eliminate your debt quickly, cheaply and completely. Why wouldn't you take them up on their offers? We certainly can see why it is tempting, but there are a few things they won't tell you about their services.
Here are are some dirty secrets that you need to know about before investing in a debt settlement company to settle your financial issues. Below, find the top three secrets that debt settlement agencies probably won't disclose when trying to do business with you.
Your debt and credit may get WORSE before it gets better
Most debt settlement companies will require that their customers stop making payments. They do this so that they can let time elapse where they can start negotiations into paying off your debt for a lesser amount. However, in the meantime, there will still be late fees from the creditor amassing against your card, as well as any other penalties that come along with late and missed payments.
This can affect your credit negatively as the creditors report out to the major credit agencies, and the results can be detrimental to your credit score. While these agencies can help to lower payments, it is not often dramatic enough to help provide a long-term solution.
You have other options
A debt settlement agency will encourage you to utilize their services and make it seem like if you do not, you will be in debt forever with no way out. However, they generally resolve one type of debt and even if you do manage to negotiate the debt down and eventually pay it off, you may be at risk for amassing debt again based on your spending habits.
The failure to be able to negotiate to lower all of your debts does not stop the cycle. It might grease one of the spokes, but if you have any other debts, it rarely solves the rest of the problem.
A debt settlement company is completely different from a credit counseling service and the services provided vary greatly. Financial counseling is imperative for those in debt. Available are many resources that offer education to teach you how to use credit wisely. Often, these programs are free or low-cost and offered locally via credit counseling and financial freedom organizations as well as various government and city agencies.
They might not be allowed to collect upfront fees by law
That is right. By law, these agencies are only allowed to collect a certain percentage of the total debt that they are negotiating on your behalf - after they have finished the negotiations and payments are being made. For many states, there are also caps on the amounts that they may collect overall.
You may want to consider filing for Chapter 7 or Chapter 13 Bankruptcy if you have amassed an overwhelming amount of debt. Unlike debt settlement, filing Chapter 7 bankruptcy will dismiss most if not all of your eligible debts, including credit cards, and Chapter 13 will offer a plan that allows you the ability to reorganize all of your debt into a manageable plan and pay your creditors back over three to five years.