Debt settlement is becoming very popular now that the recession is stretching into its third year. One of the appealing aspects of the debt settlement pitch is the idea that a debtor can pay only pennies on the dollar for a debt and avoid bankruptcy. But the truth about debt settlement is that it rarely can deliver on its promises and often leaves debtors in a worse financial condition. Let’s take a look at a few of the ways that debt settlement companies can ruin your finances:
- They charge astronomical fees above and beyond the money you pay your creditors and they make sure they pay themselves first. It is not unheard of that a debtor will pay thousands of dollars to a debt settlement company only to find out later than only a small fraction of that money went to their creditors. This can leave the debtor devastated and running to bankruptcy for relief.
- The debt settlement company has no concrete agreements with the creditor and that creditor takes the payments AND sues the debtor. Creditors are not legally bound to negotiate with debt settlement companies and they are not required by law to accept anything less than what you owe them unless you are in bankruptcy. Many debtors end up in financial ruin after debt settlement companies fail to secure legally enforceable agreements from the creditors they have “negotiated” settlements with.
- Most debt settlement companies are not able to negotiate settlements with all of a debtor’s creditors so the debtor ends up paying their fees; plus fighting other creditors in court or having their assets seized after a creditor who was not part of the debt settlement process wins a lawsuit against them.