Dealing with debt settlement companies can be beneficial, but not without risk. Some companies promise more than they can ever deliver on, while others offer a number of advantages if you work with them. If you are seeking help in managing your debt, be sure to weigh these pros and cons carefully before making a decision.
They have experience
An ordinary consumer doesn’t have experience negotiating with creditors, and might not be able to recognize a good deal when it is offered. A good debt settlement provider knows how much a creditor can and will settle for.
Lower your debt
This can come by either reducing the total amount of your debt or by reducing your interest rate on future payments. It will depend on your creditors and the type of debt management required.
There is a separate set of pros and cons to consolidating your debt, but the fact settlement companies offer the service is a benefit to some. For those with multiple debts, consolidating can make it easier by only having to make one payment rather than many.
No upfront fees
The service is not free, and most companies charge monthly payments alongside your debt payments. However, the Federal Trade Commission ruled that fees can only be charged by debt settlement companies after they successfully negotiated the debt on terms the consumer accepted.
Promises are sweet, but reality can be bitter at times. Creditors don’t have to negotiate and can even refuse to speak to companies on your behalf, which makes it impossible for them to help you.
Possibly more debt
Most debt settlement companies ask you to stop paying you debts off temporarily so they can get creditors to negotiate and save up the funds to pay later. If the negotiations fail you will only incur more fees on your debt.
If the negotiations fail after taking a break from payments, not only are you facing fees, but your credit may take a nasty hit. Few in debt can afford their credit getting worse.
Even if your settlement results in forgiveness, you still might pay a fee in the form of taxes. The IRS has the right to tax you on every forgiveness over $600 at the end of the year.