Although many people find themselves in credit card debt, nearly as many find themselves confused about their options for getting out of debt. Debt management, debt consolidation or debt settlement—it’s easy to find your wandering about the best course of action to take. If debt settlement is the option you choose, you should be aware about some common myths about credit card debt settlement.
Debt Settlement Companies are my Friends
People want to believe that credit card debt settlement companies exist to help them, but the fact is, they’re in business to make money. The first thing you should do is shop around. Call the Better Business Bureau and ask friends or family members about their experiences. Also, get fees in writing. There are up-front fees, monthly payment options, extended payment plans and other options, according to the CreditCardDebt.org website.
My Credit Score Will Improve
Not only may debt settlement not improve your credit score, it can hurt it, sometimes as much as a bankruptcy. Some credit card settlement companies actually advise clients to skip payments while in negotiations or while paying the settlement company, which certainly will hurt credit scores.
I’ll Be Debt Free
Many settlement companies collect monthly payments, along with fees, from you until enough money is available to negotiate with the credit card companies and pay off your debts. Depending on the type of agreement you signed with the settlement company, you still may owe fees to the company after your debts are paid, in essence owing another creditor. Your credit card debt will be eliminated, but you may have a new creditor in the settlement company.
Everyone Can Do It
Your settlement proposal very likely will be rejected by credit card companies if it’s not reasonable—say a 30 percent reduction of your balance—and unless you have a good reason for the deal. Issues such as being laid off or having medical problems may be acceptable reasons for a compromise, according to the Credit Card Debt Solver website. Companies that promise a 50 percent reduction in your debt should be viewed skeptically. Moreover, no one has an inherent “right” to settle a debt for a reduced amount.
I Can’t Do It Myself
No one will work as hard on your behalf as you, so contacting credit card companies yourself should be a first step. Many companies will be more sympathetic speaking directly with the debtor than with a settlement company, especially if you have legitimate reasons for your current situation.
All Companies are Created Equal
Like most businesses, the quality and reliability of settlement companies varies widely. One step to ensure a minimum level of quality is to find out if the company is a member of TASC, or The Association of Settlement Companies. TASC members, for example, don’t control, manage or handle clients’ money, instead negotiating settlements and having clients make payments to credit card companies.
Debt Reduction is Always Good
The thought of reducing your credit card debt from $20,000 to $12,000 may seem like a great idea, but if you have good credit, you may not want to jeopardize that score. Negotiating on your own, or making sure that the credit card settlement company directs your payment straight to the credit card companies, is one way to minimize credit score damage, but simply reorganizing your finances to meet your current credit card obligations may be the best alternative.
Debt Reduction is Free
Debt reduction is not free. You pay a fee. Even government agencies don’t provide direct help, but rather direct clients to approved settlement companies.
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