The Truth Behind Debt Settlement

It sounds too good to be true.  They promise lower monthly payments, yet reducing your total debt at the same time.  Well, the saying goes, “If it sounds too good to be true, then it probably is!” hold for this too.  There are many important details that the debt settlement companies don’t want you to know. 

Red flags should go up when it seems these companies are helping you for free.  They’re not.  They have very large administration fees that are hidden simply because people don’t ask.  The majority of people using debt settlement companies are so relieved from their promises that they don’t ask questions to find out how the companies settle the debt or to even explore other options.  Then they discover the high fees after it’s impossible to turn back from debt settlement. 

High administration fees are not the only hidden secret.  When you start sending the settlement company monthly payments, they use your initial few payments to pay for the high administration fees instead of sending any of the payments to your creditors.  After several months, your creditors are wondering why you haven’t been making your payments.  All the while, your credit rating is slowing getting destroyed as your creditors continue to report your payments as 30 days late, then 60, 90 and up to120 days late.  Yet, this is precisely the plan that the debt settlement company had in store for you!     

Debt settlement relies on your creditors being willing to settle your debt after your accounts have become seriously delinquent.  Most creditors are willing to settle your account because they would rather recover something from you instead of nothing.  That is why debt settlement companies wait to contact your creditors to settle any debt.  Some creditors are willing to settle a seriously delinquent account, but others just charge it off.  Either way, your credit rating is damaged by the settlement or worse by the account being charged off.    

Meanwhile, you keep sending payments to the debt settlement company.  You are falsely under the impression that your accounts are properly being paid.  It is even probable that your creditors may start calling you and sending notices that your accounts are delinquent.  You were advised to disregard any calls or notices concerning late payment notices.  However, once your creditors have attempted to properly notify you, they are within their legal right to bring a suit or judgment against you.  If either action is pursued by your creditors, you could be required to pay them much more money than if you had just kept paying on the debt and not sought out debt settlement.     

Therefore, prior to signing any debt settlement agreement with a company, always investigate the facts.  Remember to always ask about the fees that they charge, whether they are flat fees or percentages.  Also make certain that you are clear about their plan on how they will be working with the creditors to settle your debt.  If the debt settlement company advises that you should stop making payments for any period of time, then stop doing with them instead!  Debt settlement may hurt your credit rating much more than it could ever possibly help it.