Facts About Debt Settlement Companies

Before signing a contract with a debt settlement company, it's important to know the negative impact a debt settlement could have on your financial future.

With a Debt Management Program, the overall balance is not reduced (just the minimum payment due and interest rate), there are no tax implications and the creditors will not report that the debt was settled. The facts about a debt settlement are outlined below:

For-Profit Company

Debt settlement companies can charge expensive fees, especially large up-front fees. They may require payment in advance prior to obtaining settlements for you. They will also continue taking fees even if a debt cannot be settled.

Misrepresented Outcomes

They make promises that sound appealing but are normally too good to be true. They will commonly misrepresent and exaggerate how much they can decrease your debts by.

Credit Damaging Methods

By working with a debt settlement company, they will tell you to stop paying your creditors, which can drastically affect your credit. Your accounts will go past due, and the company cannot prevent collection tactics.

Creditors Are Not Paid Monthly

The payment that a consumer makes to a debt settlement company will go to a savings account in order to accumulate funds for the settlements. Your creditors are not receiving monthly payments.

Potential for Legal Actions

Creditors are under no legal obligation to accept settlement offers, and many will refuse. It is highly possible for a creditor to file a lawsuit to collect on the account, which could lead to judgements, garnishments, or bank account freezes.

If you are looking for assistance with debt, a good first step is to seek advice from a not-for-profit entity. By working with a nonprofit agency like Consumer Credit Counseling Service of Chattanooga (CCCS), fees are minimal in comparison, and your Certified Credit Counselor will take an overall look at your financial situation to provide the best advice and options.