Credit Card Debt Settlement Deals Typically Too Good To Be True
As of this June, the average American household had just over $15,500 in credit card debt.
Considering credit card debt is only the third largest source of debt behind mortgages and ever-rising student loans, it's no surprise that most consumers' wallets are feeling pinched.
And it may also be no surprise why a growing number of Americans are falling for debt settlement scams.
Debt settlement companies frequently attract the attention of their customers with amazing claims. They may promise to cut credit card debt in half overnight or to settle your entire credit card balance without bankruptcy. But is getting rid of mountains of debt really as easy as hiring the right company?
According to CreditCards.com, most debt settlement claims are in fact misleading. Here are some of the true facts they reveal about debt settlement.
Not Everyone Qualifies - And Those Who Do Must Often Wait
Debt settlement firms may promise to slash your debt, but in reality, drastic debt reduction is reserved for folks who can prove that financial hardship such as illness, job loss or divorce has made it impossible to pay back debts.
Since so many Americans are also struggling with debt, even those who have a valid excuse for difficulty making payments may have to wait in line for help. Creditors aren't quick to work with consumers - or debt settlement companies - because they're already overwhelmed with millions of other people trying to get their balances lowered.
Many Debt Settlement Companies Are Costly - Especially When They're Scams
Unfortunately, many companies that claim to help consumers are simply out to make a buck (or quite a few bucks) off someone else's financial suffering.
Often times, debt settlement companies will ask their customers to stop sending payments to creditors, instead directing the payments to the firm. By doing so, they say, creditors will become more eager to negotiate.
What actually happens is that the missed payments lower your credit score. Meanwhile, debt settlement companies are earning interest on your money. In worst case scenarios, they may mismanage the funds, go out of business, or skip town.
There is such a thing as a reputable debt settlement company, but even a solid reputation doesn't guarantee a firm can do much to lower your debt. And when you factor in actual costs - which include large maintenance fees, percentage fees, interest, and even taxes on forgiven debts - attempting to eliminate debts may actually result in new debt.
Debt Settlement Takes a Toll On Your Credit Score
Many customers attempt debt settlement because they hope they'll be able to take care of debt without resorting to bankruptcy, which they worry will damage their credit. But what most folks don't realize is that nearly any financial action - from debt settlement to a foreclosure or short sale - will show up on a credit report.
What makes bankruptcy different is that, while it will lower your score initially, it sets up the framework for you to begin rebuilding your credit. Depending on whether you file for Chapter 13 bankruptcy or Chapter 7 bankruptcy, you can either reorganize your debts into more manageable payments or eliminate debts entirely.
If you can't afford to pay your debts, it's unlikely you can afford to pay an expensive debt settlement company. Why risk compounding your debt situation when there's a proven solution?
Bankruptcy is the only method designed by the U.S. government to give consumers a fresh financial start.
To learn if filing for bankruptcy can offer the debt relief you need, call DebtStoppers at 800-440-7235. Call today to schedule a free one-on-one debt analysis with an experienced bankruptcy lawyer in Tennessee, Chicago or Atlanta.
More Blog Entries:
Life After Bankruptcy Is Better Than Most Americans Think, Says New York Times: October 8, 2012
Foreclosure Rates Hit New Low As Refinancing, Bankruptcy Help Distressed Borrowers Hold onto Homes: October 11, 2012
Additional Resources:
8 Myths About Settling Credit Card Debt, by Sally Herigstad, CreditCards.com