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Debt Settlement Programs

Debt settlement is not the same thing as consumer credit counseling or a debt management program. It can be very risky and may have a long term negative impact on your credit report and, in turn, your ability to get credit. That’s why many states have laws regulating debt settlement companies and the services they offer.

Notice: If you find yourself financial stressed and considering bankruptcy, we strongly suggest that you first call 1800DEBT.COM for a FREE Debt Consultation. Filing for bankruptcy should only be considered as a last resort. Call our toll-free number right now. If you are not in a position to speak to a counselor at this moment in time, you may also click here to make your request online for a free consultation.

Debt Settlement Company Claims

Debt settlement agencies may claim that they are a nonprofit organization. They may also claim that they can arrange for your unsecured debt — typically, credit card debt — to be paid off for anywhere from 10 to 50 percent of the balance owed. For example, if you owe $10,000 on a credit card, a debt settlement agency may claim it can arrange for you to pay off the debt with a lesser amount, say $4,000.

Debt settlement agencies often pitch their services as an alternative to bankruptcy. They may claim that using their services will have little or no negative impact on your ability to get credit in the future, or that any negative information can be removed from your credit report when you complete the debt settlement program. The firms usually tell you to stop making payments to your creditors and instead, send your payments to the debt settlement company. The firms may promise to hold your funds in a special account and pay the creditors on your behalf.

The Truth About Debt Settlement Companies

Just because a debt settlement company describes itself as a “nonprofit” organization, there’s no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. In fact, if you stop making payments on a credit card, late fees and interest usually are added to the debt each month. If you exceed your credit limit, additional fees and charges also can be added. All this can quickly cause a consumer’s original debt to double or triple. What’s more, most debt settlement companies charge consumers substantial fees for their services, including a fee to establish the account with the debt negotiator, a monthly service fee, and a final fee of a percentage of the money you’ve supposedly saved.

While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Saying this, however, there are debt settlement companies that do fully inform their clients of the risks of entering their program. Understand that no legitimate debt settlement company can make any guarantee as to what they will be able to achieve in regards to negotiating a mutually agreeable debt settlement. Avoid any debt settlement company that makes such a claim. Creditors have no obligation to settle a debt, although many creditors are upon to negotiations where they believe it is in their best interest. Even if you are dealing with a legitimate debt settlement company they may or may not prove to be beneficial to your particular situation.

Enrolling in a debt settlement program, by its very nature is subject to many unknown factors, and you must always be aware that you do so at your own risks. The bottom line is, it should only be used to avoid bankruptcy, and in this regard, if the debt settlement company is successful in negotiating your debts, the negative impact and cost could prove more beneficial then filing for bankruptcy.

To learn more about debt reduction settlements call 1800DEBT.COM for a free debt consultation with a certified debt professional or click here to apply online for debt relief.

Tip-offs To Rip-offs

Steer clear of debt settlement companies that:

  • guarantee they can remove your unsecured debt
  • promise that unsecured debts can be paid off with pennies on the dollar
  • require substantial monthly service fees
  • demand payment of a percentage of savings
  • tell you to stop making payments to or communicating with your creditors
  • require you to make monthly payments to them, rather than with your creditor
  • claim that creditors never sue consumers for non-payment of unsecured debt
  • promise that it will have no negative impact on your credit report
  • claim they can remove accurate negative information on your credit report

If you decide to work with a debt settlement company, be sure to check it out with your state Attorney General and local consumer protection agency. They can tell you if any consumer complaints are on file about the firm you’re considering doing business with. Also, ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.

Speak To A Certified Debt Professional

We strongly suggest that prior to enrolling in a debt settlement program or any other debt service that you first speak to several debt professionals. Obviously you can call anyone that you wish and speaking to 3 or more debt professionals may prove very beneficial in finding the right agency. So, by all means, be sure to check out the various resources listed on this page and website.

We highly recommend, however, that in your research you call 1800DEBT.COM for a FREE debt consultation. By calling this number you will not only be able to speak immediately to a "certified" debt specialist, but based on the area code you're calling from, your call will automatically be routed to a debt professional in your local area. Today, each state has their own laws, regulations and licensing requirements, so it's important to speak with someone who is familiar with your particular area.

In addition, the debt management specialist will be able to assist you in various ways depending on your particular situation. So do yourself and your loved ones a huge favor that could significantly change your lives and call right now and speak to a debt professional. The call is absolutely free, completely confidential and there is no obligation whatsoever. You truly have nothing to lose, except, except, that is — your debt!

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