In the previous installment of “Debt Consolidation Myths,” the topic was credit counseling versus debt management programs under the heading of smarter and more informed debt consolidation. If you’ve fallen heavily into debt, you may have also heard of debt settlement programs. You may have heard that debt settlement is less expensive than other forms of debt consolidation, and knocks down your balances. While neither of these rumors is inherently false, you should be aware that the mechanics of debt settlement are highly unethical, and could be the final nail in the coffin burying your flagging credit score. Knowing more about what debt settlement is can help you realize why you shouldn’t participate in these programs, and what other options are available to you.
Debt settlement is essentially a third party holding on to your money allocated for payments until creditors “give up” and forgive a percentage of the debt. During that time, no payments are being made to your accounts. Some truly unsavory settlement agents will make clients sign an agreement that, if they miss a payment on the settlement, the agent gets to take all previous monies paid as a fee. And, while credit card companies and other debtors may ultimately agree to a considerably lower settlement amount to make the debt go away, your credit score will suffer dramatically for it. In the end, the consumer loses out, and the settlement agent/company makes money. And, considering that creditors will make these last-ditch deals to individuals with or without a third party, you could theoretically just as easily ruin your credit by yourself, without the intervention.
It may seem harsh, but, long story short? Run, don’t walk, from debt settlement prospects. You have nothing to gain from them, and your entire credit score to lose. ■
SIGN UP
