Don’t Get Caught in the Debt Settlement Trap
Having trouble paying your bills? You’re not alone. Many people are struggling with their
finances. You may be tempted by ads from companies offering to settle your debts for 50 cents
on the dollar, but beware – it could be a trap that will leave you further in debt.
What you need to Know about Debt Settlement Services
Most debt settlement companies charge regardless of whether they ever settle your debts.
They usually collect most or all the fee from you long before they have helped to eliminate your
debts. You pay the fee whether your debts are settled or not.
Debt settlement services don’t provide instant relief. Most debt settlement services require
you to deposit a specific amount of money in a bank account each month until you have enough
to make a reasonable settlement offer. While you are trying to save, the debt settlement
company’s fees are being deducted from your bank account. Saving enough for a settlement can
take a year or more. If you have multiple debts, you will save for them one-at-a-time, so the
whole process could take several years.
Debt settlement services can be very expensive. The charge is often based on a percentage of
the total amount of debt that you want help with when you sign up for the service. A typical fee
of 15 percent (some are even higher) on four credit card accounts totaling $20,000 would be
$3,000. You would pay that amount regardless of how many of the accounts, if any, are actually
Claims for success rates can be very misleading. Debt settlement companies advertise big
savings but those claims often don’t take into consideration the number of accounts that are
never settled or the fees that customers pay. Industry figures show that the majority of debt
settlement customers drop out of the programs within the first six months, after they have paid a
large portion of the fees but before their debts are settled.
Debt settlement programs don’t stop debt collection. B