The Problems with Debt Settlement
Debt settlement is an effective way to permanently eliminate your credit card and other unsecured debts. While the system is effective and will produce long-term results, there are some potential pitfalls you should be aware of. Before signing the dotted line with any company and pursuing this option, here are the problems you should be aware of.
No Secured Debts
Debts that are secured by a house, vehicle or other asset cannot be discharged in this manner. Rather than settling with you for less than is owed, the company will simply repossess the asset and sell it. If you are mainly dealing with secured debts, then this system is probably not the best choice for you. However, it can be an effective program for unsecured debts like credit cards and signature loans.
Phone Calls
The first step in any settlement program is to stop making payments. This will naturally result in a surge of phone calls wanting to know why the payments are not in, when they will arrive and what is going on. The phone calls can be frustrating and upsetting. You can put an end to them by sending a written letter to the company demanding that all further communications be made in writing through the mail.
No Exceptions
The systems require following a certain pattern, and that involves including all unsecured debts in the program. Attempting to salvage one account by still making payments on it will jeopardize the success of the entire program. As the program progresses, your credit accounts will be closed as part of the negotiation process. The good news is that you will have more money available every month, so you won’t need the credit as much. Over the course of a few years you can rebuild your credit score.
Fees
Any debt settlement program will charge fees. This is to pay for the time that it requires to make the negotiations and finalize any legal documents. The fees may be set amounts or a percentage of what you ultimately save. You should expect, however, to pay fees that are comparable to those charged for bankruptcy. This means that the program is not the best choice for small levels of debt, but it is an excellent choice if you owe large amounts.
Debt settlement programs are growing popularity because they can effectively be used to eliminate credit card debt in just a few years. The programs are not without their flaws, and they should not be entered into lightly. The systems can be valuable tools in your battle against debt, provided you have all the facts ahead of time.
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