The Risks & Dangers of Debt Settlement

Debt settlement has a number of risks

Ever wondered if debt settlement may be right for you? Debt settlement is the process of lowering your debt by negotiating with your creditors to reduce your outstanding balance. It’s a risky option, and it’s one we don’t condone. The promise or guarantee of paying pennies on the dollar seems too good to be true, and many times it is.

Even worse, debt settlement companies usually require you to stop paying your bills for a few months in an effort to make your creditors greedy about receiving at least some repayments, instead of no payments at all. While this premise may sound good on paper, it’s an often difficult and unsettling practice that is both extremely dangerous and can have a dramatic effect on your credit score.

After that, the collection calls will continue to drive you crazy, and in the end, it can leave you with even more debt.

The Debt Settlement Trap

Because most debt settlement agencies are looking to make an easy dollar, their elaborate claims and bogus offers often seem too good to be true, and unfortunately, they often are.

“Even worse, there have been many instances where none of [the money you pay them] ever makes it to [your] creditors — the companies simply steal it. Plus, a growing number of credit card companies refuse to work with debt settlement groups. Of course, a group probably won’t tell you that until after you’ve paid them.”

Red Flag #1: Once you contact a debt settlement agency, they will advise you to stop paying your credit debts.

Red Flag #2: They’ll then have you deposit the money you would be paying into a third-party account.

The settlement company will attempt to negotiate a settlement offer with your creditor once enough money relative to the debt is on deposit.

  • This may take six months or more, although the exact length of time will vary with circumstances.
  • During this time, the balance on your debt can continue to grow if interest and various penalty fees continue to be charged by your creditor.
  • As a result, you may owe more than when you started, and your credit may suffer.
    (CBS News)

The Potential Damages of Debt Settlement

Debt settlement isn’t good for your financial reputation.

“Some creditors will never do business with you again if you:
1) Settle a debt owed to them
2) Discharge a debt owed to them via a bankruptcy.

And while the future prospects of not being able to do business with a handful of lenders probably isn’t terribly important to you, it should at least be considered.

What happens if you work for a company that tries to get you a business credit card from one of the spurned lenders? That’s going to be an embarrassing conversation to have with your boss.”

–Not only can debt settlement hurt you immediately due to the fact that you’ve been instructed to stop paying your bills, it can also have a lasting effect on your credit score, which is just another reason why it’s never a good idea.
(Mint)

A Safe Alternative to Debt Settlement

At CreditGUARD, we never advocate debt settlement.

As a nonprofit organization, we have a different and more effective point of view to offer than for-profit entities like debt settlement agencies or law firms.

Our credit counselors are here for you, not to make a profit from your difficult financial situation.

In our nonprofit debt management program, you make one easy monthly payment to satisfy your obligations to creditors. CreditGUARD doesn’t settle debt. We advocate on your behalf to reduce your interest rates and interest owed so that we may save you money and empower you to earn your freedom from debt faster than you could otherwise making minimum payments and dealing with difficult late fees and uncomfortable collections calls.

Call a certified credit counselor today to learn more and to get started on the road to financial freedom.

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Also See…

For more information on debt consolidation, please visit:

Why Choose CreditGuard? Learn what sets our debt consolidation services apart from the rest and how we can help you take control of your debt.

The Ultimate Debt Survival Guide. Need some practical advice for dealing with debt? You’ve come to the right place. This free downloadable guide can teach you the basics of managing debt (and more).

Is Debt Settlement a Good Idea? Debt settlement and debt consolidation are not the same. Learn more about the process (and consequences) of settling your debts before going down that path.