Why We Shouldn’t Depend on Debt Settlement Companies Too Much?
Posted on January 18, 2016
Normally, debtors need to pay a specific amount of money to debt settlement firm for their services. It could be between 5 to 20 percent of the debt amount. Without proper help, we will be deeper in debt and debt settlement often says that we will need to stop communicating with the creditors, they will be able to handle everything. This sounds like an appealing proposition, because much of the hard work and hassle are transferred to someone else. However, it is a good idea to still communicate with our creditor. If all communication is terminated, we will never know the amount of fees and penalties that are recently added to the total amount of debt.
In the meantime, it is possible that the actual amount of debt will grow. There will be calls and letters from debt settlement firms that we need to pay a higher amount. Some court judgments could cause to get deeper in debt. In this situation, we can’t afford to back out from the program, because the debt will remain there. The actual amount would be higher because we need to deal with finance charges and late fees. Finishing the debt settlement program may require a lot of commitment. Despite the help from professionals, we can’t achieve good results if we lack the necessary discipline to eliminate debt.
It is important for debtors to understand the possible pitfalls when they sign up with a debt settlement program. Some of their offers could sound and feel like a lifesaver. However, these people could charge use hundreds of dollars in fees only for preliminary supports. We should check with Consumer Federation of America, Consumer Action, National Consumer Law Center and Consumers Union to make sure that we are working with the proper team. We shouldn’t choose improper debt settlement firms that could only cause us to go deeper in debt, because they charge hidden fees and hefty charges.
In fact, more than half of people who sign up for debt settlement services would eventually drop out of the program within the first six months. There are simply unsuccessful in settling their debts. There’s no guarantee that they will be able to settle our debts our savings account will be deducted for their full fees. These debt settlement services will not provide us with help without deposit or upfront fee. The bigger fees may need to be taken out each month and after they have settled the program. We shouldn’t work with a debt settlement company that charge too much fees upfront. The money should be given to the creditors instead. We should also know that the contract with the debt settlement services shouldn’t be legally binding.
The debt settlement firm should be a long member of trusted organizations such as TASC or The Association of Settlement Companies. It means that they will adhere to the proper debt settlement standards. If the debt settled is higher than $600, it will be taxable by the IRS, because it will be considered as an income obtained from the Discharge of Indebtedness. If we have a low credit score, the condition can be even more difficult. It would be better if we are able to pay off debts, because it will allow us to increase the overall credit score.