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The Dangers Of Debt Settlement Companies
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It's estimated that nearly 57% of families in the United States live paycheck to paycheck, and the average household in the country now has more than $18,000 in debt, excluding mortgages. Millions of people now face serious amounts of debt with seemingly no way out, barely able to afford the minimum payments.
If this describes you, you've might have been tempted already by claims from debt settlement companies to "cut your debt in half," "erase your debt in 1-3 years," "improve your credit" and "stop harassment calls from creditors for good." The bad news? These claims are, at best, misleading and do not accurately portray what debt settlement services do for you.
Many of these claims are outright false, or at best only a best-case scenario. Debt settlement companies work by negotiating with your creditor to get them to accept less than the amount owed. Some debt reduction services won't even go this far, but assuming they do, they face substantial hurdles.
Here are just a few of the things that may go wrong:
• Your credit rating worsens because, before debt settlement services can be used, the company will tell you to stop paying all of your bills to build up a lump sum of money for settlements and to give you leverage. This means you will have multiple missed payments on your credit report.
• Your credit score drops even further when your accounts are settled. Once an account is settled for less than is owed, this is reflected on your credit report for 7 years and it's a serious red flag to future lenders.
• If debt is successfully settled, you may be on the hook for paying taxes on the forgiven debt. You will receive a letter from the creditor and the IRS considers forgiven debt income.
• Unlike debt settlement lawyers, debt settlement companies cannot represent you in court or offer legal advice if your creditors take you to court.
• Debt settlement companies cannot stop harassing phone calls from your creditors.
• Once your creditors learn you are using debt reduction services through a company, they are more likely to become more aggressive, sending your accounts to collections sooner or taking you to court.
• You may end up paying the company for months or even years without successfully settling a single debt. They may also charge you a fee based on your total debt.
While debt settlement companies will continue to take your payments, your creditors will be unhappy as you try to get off from paying them the full amount you owe. You will be hounded continuously by collection calls with late fees and additional interest charges added to your account every day. Your credit rating will drop dramatically as you stop making payments and even further once you settle the debts.
Debt negotiation services come with no guarantee, and it's not uncommon for them to be unable to reach a settlement at all, let alone on the terms they promised you when you signed up for the service. In the end, you will still be responsible for the debt, which is going to be even higher than when you started.
Rather than turning to shady debt negotiation companies, consider getting help from a debt settlement attorney, who offers better leverage against your creditors and can counsel you and represent you in court, if necessary.
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