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Debt Settlement Companies, Watch Out When You Settle With Some - Part 1Debt settlement companies have a bad reputation, at least some of them. The advice time and time again has been not to settle with them. Instead, it is better to negotiate on your own whether or not you want to cut down a portion of your debt. I know it is so nice to hear advertisements saying you can walk away from 50% of your debt. But there are pitfalls involved. Debt settlement is supposed to be the process to pay off debt with the outstanding balance cut down to around 40%-60%. Some say you will not be harassed by the collection agency and creditors and may help avoid legal actions and your wage garnished. But this has not been the case to a lot of debtors. So let us see how it works. How Debt Settlement Companies Work This is how some of them operate. They set up a monthly budget and determine the monthly payment you can deposit into an account that is set up to pay the creditors. They will tell you to deposit money into this which is supposed to pay the creditors but some will deduct their large fees first which in some states is illegal. Some will ask you to take the money you usually pay the creditors to pay their fees instead. This will be in the vicinity of 15%-20% of the total amount you owe. This is money you do not get back whether or not you complete the program or your debt is settled. That is why some firms have been banned in several states. Another reason why debt settlement companies are under attack is the fact that very few complete the debt settlement. One state investigated a company and found that 89% left with more debt than they had before. And some paid thousands in fees. The first four months of the money sent to the account goes to the company as fees. It is only around the fifth month when the money sent starts building up to settle the debt. Sometimes it takes up to a year before the lenders get some of the payment. The credit is of course ruined. Before you know it, things will get worse. Since you stop paying the creditors, you will receive finance and late fees charges. Then the collection calls will start. Your credit rating will go down and you will have to live with this for seven years. Waiting for enough payments to accrue before settling the account takes time. The settled account is usually for 30%-40% of the original amount of debt. The settled amount also depends on the type of the debt incurred. For some, this is the advantage they like to see in settling through debt settlement companies. That and avoiding having to file for bankruptcy are what they see as important parts of the process. This is the first part on how some firms work. Part 2 will cover the rest on how they work so make sure you watch out for it because all parts of these series will give you everything you need to know when dealing with any debt settlement companies. Refresh Article 109 Debt Settlement Companies, Watch Out When You Settle With Some - Part 1 Article 111 Debt Settlement Companies, Watch Out When You Settle With Some - Part 2 |
