If you’re feeling overwhelmed by debt, you may be looking into various options that could assist you. When researching debt relief options, you may come across websites for debt settlement companies that claim they can give you the relief you’ve been looking for. However, there can be tremendous consequences involved with using companies like this. Here are some risks you should consider before working with a debt settlement company:
- Debt settlement companies consistently charge expensive fees. They can charge large up-front fees as well as monthly fees, and they may not begin negotiating with your creditors until that up-front fee is paid in full.
- They will advise you to stop paying and communicating with your creditors, which will lead to further charges accruing on your credit accounts such as late fees and over-limit fees. Interest will also continue to accrue on the growing balance.
- By not paying your debt and depending on when/if the company can negotiate settlements, your creditors can potentially sue you, which can lead to wage garnishment.
- Some creditors may not work with the debt settlement company.
- The company may also not be able to settle all of the debts.
- The process of debt settlement can take several years. Your credit can suffer tremendously, and using the company can leave you in greater debt than you were before even starting the process.
- There can be tax implications involved with debt settlement. According to the NFCC, forgiven debt is considered taxable if over $600.
If you are considering using debt settlement as an option, you don’t have to hire a company to assist with this. You can settle the debts yourself by contacting the creditor and making a proposal. You can also reach out to a NFCC certified credit counseling agency to discuss your options for debt assistance. NFCC credit counselors are non-profit, and they can review your overall financial situation in order to make the best recommendations to fit your needs.
Sources: