Consumers burdened by too much debt often hope to settle their debts for amounts less than they owe. Consumers can try to settle debts by themselves, or with the assistance of legal counsel. Alternatively, many will turn to so-called “debt settlement agencies” for help.
What are Debt Settlement Agencies?
Debt settlement agencies are for-profit businesses that generally require you to set money aside in an account the agency sets up for you. The intent is to build up a fund that will later be used to try to settle your debts. During the build-up phase, and this is important to understand, you will not be making any payments on your debts. Because of this, you may be sued for collection and you will likely get pressure from debt collectors to pay.
How do Debt Settlements Work?
The debt settlement agency will monitor your account and will let you know when there is enough money in the account to attempt a settlement. If the debt settlement agency is able to work out a settlement, they will in almost all instances take a fee out of the account that is equal to some percentage of the amount saved by the settlement. This fee is in addition to the other fees the debt settlement agency charged you including fees to start the service and monthly fees they take from your account for monitoring the account.
Why Debt Settlements May Not Be the Right Answer for You
According to Surviving Debt, a publication of the National Consumer Law Center, there are five things you need to understand about debt settlements:
- Most debt settlement companies will charge you whether or not they ever settle your debts.
- Debt settlement services do not provide immediate relief.
- Debt settlement services can be very expensive.
- Debt settlement agency claims of success can be very misleading.
- Debt settlement programs do not stop debt collection efforts.
For the foregoing reasons, working with a debt settlement agency is almost always a bad idea and can get you into deeper financial trouble.
If you are struggling with too much debt, call or email us to schedule a “Get Out of Debt Planning Session.”
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