Are you considering working with a debt settlement firm to fix your credit? If so, tread very carefully
“Debt settlement,” like “bankruptcy,” is one of those terms no one likes to hear in reference to their finances. Now, if you’re a truly savvy consumer, you might think you’ll never have to worry about either… but nowadays, things are less certain on the economic front that they’ve been in decades.
What might seem a great investment today might not seem like such a good idea tomorrow; it’s easy to make mistakes. And of course, you can’t plan for unexpected expenses, and who knows what the economy is likely to throw at us next?
When you find yourself in financial distress, it’s only natural to reach for whatever life preserver someone throws you. Debt negotiation companies might start looking quite attractive, in fact. They promise they’ll help renegotiate your bills with your creditors so you end up paying less, which is a good thing. Right?
On the face of it, this does seem logical. But you need to look over any offers very carefully. Most settlement companies can and will help you reduce your debts to 50 percent or less of what you originally owed… but watch out.
Remember: these companies are for-profit businesses. Sure, they’ll arrange a repayment plan that lets you pay off your bills over 2-4 years, but they’ll also add a stiff fee to the total — possibly as high as 35%.
On top of that, they may charge you additional monthly fees that may range from $19-89. And let’s not forget late fees, if you happen to send in a check late — which they may encourage by sending you your bills late, a common practice. In the end, they’re likely to earn thousands of dollars from you.
Even worse, they may “front load” your payment scheme: that is, arrange it so that you have to pay their fees before any money goes to your creditors. In other words, your first few payments may go to the settlement company, while your creditors wait impatiently to get some money from you.
Needless to say, this practice can only make your relationship with said creditors even worse than it already was.
Is It Worth It?
That’s a darn good question, but unfortunately, it’s not especially easy to answer. Settlement companies can help you, if you’re very light-footed about picking through the minefield that they represent, and you ask a lot of questions, and pay everything on time or, better, in advance.
But even if you do, and even if you pay off your settlements, you may not be off the financial hook. We’ll take a closer look at the big problems of debt settlement in Part II of this article.