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There are a few things that most debt settlement companies will not tell you. It is for this reason that you should look up for them in the best and most neutral third party websites prior to making an agreement and ending up in soup.
They will not say anything about their business whether it is looking up or down. Though they sound very tempting to any consumer stuck and strapped in debt but there is more than a just simple easing of monthly installments to attain a debt-free state. According to reports and studies, on an average, a consumer amasses a lot more obligations through debt settlement. It is even more if you have multiple debts.
This is elusive freedom according to critics of debt settlement. They also say that the consumers should understand the trade-offs upfront to avoid a far worse situation through debt settlement. This is due to the tightened credit standards after the Great Recession which is certainly not helpful for the debt settlement industry.
Therefore, when things go over your head, critics say that it is better to proceed for bankruptcy directly or slash down your spending level so dramatically so that you do not require any intervention of these companies.
It Is A High Stakes Game
You will need a strong heart and a stomach of steel to work with a debt settlement company. You will never hear it from the horse's mouth that debt settlement is a game involving high stakes.
- It is through debt settlement feedback and reviews only you will come to know that these programs will need you to go into a state of delinquency by stopping your payments to the creditors.
- This means that you will eventually be a default and welcome negative reports in your credit history by the credit bureaus. The bureau will not be interested in knowing that you are instead making payment in a dedicated account to accumulate money to make the payment to your creditor as desired.
- Collection calls will keep on coming during this time of fund accumulation. These calls can be harassing and at time abusive especially when the frequency of these calls escalates when your loan account becomes excessively delinquent.
Adding further to your woes, the interest rates may be raised by your creditors and late penalties may be added which will accrue to the final bill. A debt settlement firmcannot stop this and even cannot prevent the creditor from suing you no matter how strongly they may advertise for it.
Ask For Upfront Fees
Usually, a debt settlement company is not allowed to ask for any upfront fees according to The Federal Trade Commission's Telemarketing Sales Rule. They can only charge a percentage of the amount reduced or on the original loan amount. All debt settlement companies may not be as honest and transparent as you want in their business policy. Few may charge you such fees to make some illegal profit.
However, as per the law, if the company settles each of your debt one at a time, fees may be charged against each debt but in no way they can front load their payments.
Spectrum Of Debt Relief Options
The debt settlement company will also not say anything about the wide range of debt relief options; leave aside the pros and cons of each of these options. Education and advice on debts and credit borrowing are usually provided by the nonprofit or government organizations.
You will come to know from debt settlement feedback and reviews that debt management plans are typically offered by a nonprofit credit counseling firm and not a debt settlement company. These plans allow paying your debt in full albeit with a reduced rate of interest.
Ideally, debt relief is much similar to bankruptcy. According to Chapter 7 bankruptcy, it will discharge all eligible debt including credit card debt. On the other hand, Chapter 13 is a specific type of debt settlement plan. According to this, you can repay the creditor over time and often by an amount that is far less than the actual amount of money owed.
About Your Credit Score
Most debt settlement companies will not say anything about your credit score which they cannot do anything about.
- If you think that hiring their service will cause less damage to your credit score than bankruptcy, then think again as the impact of debt settlement is hardly benign.
- All delinquent accounts are reported to the credit bureaus within 30 days of non-payment. This will have a negative impact on your credit score. A delinquent account of 780 days may result in a drop of 100 points in your credit score, which is significant and hard to rebuild.
Moreover, any payment made that is less that it is owed to the creditor is also reported to the credit bureau and will hurt you score for seven long years.
Chances Of Bankruptcy
Having a successful debt settlement does not mean the chances of bankruptcy is eliminated. You may still wind up in bankruptcy no matter how intensively the debt settlement companies pitch their services. Bankruptcy is always a black mark in your credit score.
Moreover, the creditor still has the opportunity to sue you for nonpayment even if you enroll in a debt settlement program. Consider paying a fee of about 20% to the settlement company along with the legal hassles.
Few Other Well Kept Secrets
The settlement company will also withhold a few other facts when you enroll with them.
They might not settle all your debt but simply work on the unsecured debts such as medical and credit card bills, unsecured personal loans and likes. They usually do not work on loans that have collateral security such as car loans and mortgage.
No lawyer of any debt settlement firm will represent you through a company may vouch for it. These lawyers usually lent out their letterhead and not deal with any negotiations with your creditors.
Lastly, they will never say that you can do it on your own.