Debt settlement companies often claim they can negotiate with your
creditors to reduce the amount you owe. However, before working with a
debt settlement company, you should remember: Debt settlement companies often charge expensive fees. Debt settlement companies typically encourage you to stop paying
your credit card bills. If you stop paying your bills, you will incur
late fees, penalty interest and other charges, and creditors will likely
step up their collection efforts against you. Unless the debt settlement company settles all or most of your
debts, the built up penalties and fees on the unsettled debts may wipe
out any savings the debt settlement company achieves on the debts it
settles. Using debt settlement services can have a negative impact on your credit score and your ability to get credit in the future.
You could owe taxes on debt that is forgiven. If a portion of your debt is forgiven by the creditor, it could be
counted as taxable income on your federal income taxes. You may want to
consult a tax advisor or tax attorney to learn how forgiven debt affects
your federal income tax.
You could end up further in debt than when you started. Most debt settlement companies will ask you to stop paying your debts in order to get creditors to negotiate
and to collect the funds required for a settlement. This can have a
negative effect on your credit score and may result in the creditor or
debt collector filing a lawsuit while you are collecting settlement
funds. I see this happen frequently in my practice. And if you stop making payments on a credit card, late fees and
interest will be added to the debt each month. If you exceed your credit limit, additional fees and charges may apply. This can cause your original debt to increase.
Don't do business with a debt settlement company if it: (1) Charges any fees before it settles your debts; (2) Touts a "new government program" to bail out personal credit card debt; (3) Guarantees it can make your debt go away; (4) Tells you to stop communicating with your creditors; (5) Tells you it can stop debt collection calls and lawsuits; or (6) Guarantees that your unsecured debts can be paid off.
If you do business with a for-profit debt relief company, the company
may tell you to put money in a dedicated bank account, which will be
managed by a third party. You may be charged fees for using this
account.
Consider as an alternative to a debt settlement company consulting with a non-profit, consumer credit counseling
service. These organizations will attempt to work with you and your
creditors to develop a debt management plan that you can afford, and
that can help get you out of debt. They usually will also help you
develop a budget and provide other financial counseling.
Also, you may want to consider consulting a bankruptcy attorney, who
may be able to provide you with your options under the law. Some
bankruptcy attorneys will speak to you initially free of charge (
we don't charge for an initial consultation).
In conclusion, if you are considering hiring a debt settlement company, think the decision through and consider your options before signing up.
(502) 245-9100
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