Using Debt Settlement Service to Help with Debt
Debt settlement companies will say that they are able to negotiate with your creditors to reduce the amount that you, but before you start working with a debt settlement company then you need to keep in mind the following:
- Debt settlement companies can be expensive
- They encourage you to stop paying your credit card bills. This will incur fee and charges.
- Unless the debt settlement company is able to settle most of your debts, the penalties and fees of unsettled debts could wipe out the savings that they managed to make on settled debts.
- It can have a negative effect on your credit score.
If some of your debt is forgiven by your creditor it could be counted as taxable income.
Debt settlement companies will tell you to stop paying your debt off so that they can get creditors to negotiate and collect the funds required for a settlement. This can result in a negative effect on your credit score. Also the creditor could file a lawsuit whilst you are collecting settlement funds. If you stop making payments on your credit card then you will incur late fees and the interest will start to add up.
You shouldn’t do business with any company that promises to settle your debt if the company:
- Charges a fee before your debt is settled.
- Guarantees that you debt will go away
- Tells you to stop speaking with your creditors
- Tells you that they can stop lawsuits and debt collection.
- Guarantees that unsecured debt can be paid off.
There is an alternative to a debt settlement company and that is a non-profit, consumer credit counseling service. They will strive to work with you and your creditors to develop a debt management plan that you are able to afford so that you can become debt free.