3 Critical Things Debt Settlement Companies Won’t Tell You

When you are drowning in debt, relief can look attractive, no matter what form it takes. Debt settlement in particular, can sound like an amazing deal. Settle your debts for less than you owe, and end those collection calls for good.

For some situations, debt settlement is a good solution. But it isn’t the only solution, and it isn’t right for everyone. In fact, debt settlement can actually put some folks in an even worse position than they were before. So it’s vital to get all the facts.

You dive into the business. That may be with a debt settlement company. You must go through the following three things most debt settlement companies won’t tell you.

It might sound like a dream situation, but debt settlement can be a messy business. It takes time, patience, and nerves of steel.

Many people don’t realize that before you can settle your debt, you have to stop paying it.

That’s right. Before you can settle any debt, you have to have made zero payments on the debt, usually for six months or more.

You’re setting that money aside, of course, building a lump sum for when debt negotiations begin. But in the meantime, you still have to field threatening calls from creditors and collectors.

It’s critical during this time to know your rights and what debt collectors can and can’t do in terms of penalties and legal proceedings. You also have to practice patience and remember that debt settlement is a long game, not an overnight solution.

Don’t make the mistake of thinking that debt settlement will save your credit score. On the contrary, it’s probably going to be a lot worse and take a few years (and some hard work) to completely recover.

Because debt settlement requires a complete stop on all payments, your creditors are going to continue to report your delinquency to the major credit bureaus. You are also going to continue to accrue interest, driving your debt load higher, continuing to impact your score.

And even once negotiations are final, your score can be negatively affected.

Creditors don’t report a settled debt as “paid in full”. Instead, they report the debt as “settled” or “settled for less than owed”, which affects your credit and can be seen by future creditors if they run your credit report.

You also may not be able to avoid eventual bankruptcy, even if you successfully settle your debt. If you have many creditors, or if creditors refuse to work with you, you might not dig out of enough debt to avoid bankruptcy.

Debt settlement sounds like a great, win-win solution, and it’s easy to get caught up in the promise of relief from your debt. But debt settlement is not something to be entered into lightly, and you should know all the facts before you work with a debt settlement company.