A debt settlement company is a company that takes all of your debt information and negotiates the lowest possible payments with your creditors. These types of companies charge a fee. They act as a liaison between you and your creditors. When you hire a debt settlement company, you will not have to speak with your creditor anymore. They will take the money and pay the bills for you. When the debt has been paid, you will no longer be liable for the monies owed to the creditors, and you can walk away with a clean slate.
Saves Money – The biggest advantage of using a debt settlement company is that they can consolidate all of your debt into one monthly payment. They can work with creditors to get your debt down to more than half of the original amount. They negotiate the deal, and if the offer is accepted, you will only have to pay the negotiated amount. This is not the case all of the time, but it does happen often. This can reduce the stress of paying the money back, and it can reduce the stress that you might have about becoming financially free.
It can damage your credit – If you have a good credit standing, it is not a good idea to work with a debt settlement company. Even if they negotiate an attractive rate with creditors, the paid off account will be listed as settled for less than it was due and will stay on your credit report for the next seven years. This can have an adverse effect on your credit card standing too. It is best to contact creditors directly if your credit is not poor. This way you can keep your good credit score and manage your debt.
Watch out for Scam Artists – Even though you will get a lower rate to pay back to the creditors, many debt settlement companies will not tell you the amount. You will pay the money without knowing how much is going towards the debt and how much is going to the company as a fee. Some ways to protect yourself against scammers is to use a company that you have contacted. Try not to use one that has called your home as a telemarketer. Many companies offer a free consultation. During this time, you can ask all of the relevant questions to your case and even discuss the contract. Read all of the small print before signing any documents.
Consider your Loses – When you use a debt settlement company, your accounts usually have to be at least three to four month delinquent. When the debts are settled, you will still have to pay taxes on the settled amount. The debt collectors do not have to settle your account. They have no obligation to get it down to a payment that is suitable for you. You face the risk of being in a worse financial situation if they decide not to negotiate with the debt settlement company.
Avoid Bankruptcy – The reason why debt settlement is so attractive to consumers is that it keeps you from filing for bankruptcy. Bankruptcy can have a negative impact on your credit for the rest of your life. Every time that you have to make an important financial decision, you have to bring it up, and banks will eventually find out about it. Some will even hold it against you, no matter how long it has been. A debt settlement will stay on your credit report for seven years and then it will go away. There is also no public record of you having a debt settlement like there is for bankruptcy.
Save Money – Creditors know that if you file for bankruptcy they might not get any of the money back. This is why many of them are so willing to negotiate with debt settlement programs. By using a debt settlement, you can pay off the debt in less time. For large amounts of debt, it usually takes about two to three years to pay if off completely. You can do this while paying a much smaller amount per month. You might even be able to start a savings for emergencies.