Suppose you are facing challenges with paying off your credit card debt, especially those that have gone to collections. Then you may need the help of a company that can help you with debt settlement. There are various companies out there that can provide you with loans to settle your debts. But they all have their risks and pitfalls. In certain situations, it is a good idea to accept such an offer. But there are few things that you know before applying.
It Might Be More Than You Think
Have you read the term pennies on the dollar? You may have read this statement in an advertisement. It sounds like you can settle your debts without paying any more money. But that’s not true.
In reality, the company will pay off only 48% of the money you owe. If you owe one dollar, then the settlement company will only pay fifty cents in such a case, where you owe $5,000, and the median amount is $2500. It means that you still need to pay that amount to completely pay off your debt. The more money you owe, the more money will be required to settle your debts.
Monthly Payments for Up to 4 Years
Debt settlement requires money for the settlement. The collectors will not let you go without getting anything in return. You have to pay them something to settle your debt. In short words, you do need money for a settlement. It works like this:
- First, you have to apply for a settlement program.
- They will then create a monthly account to gather the funds to make the settlement offer.
- You can deposit money in that account to generate funds for settlement.
- When the company feels that you have enough amount, they will negotiate with the creditors on your behalf.
- After the settlement, they will take out funds from the account.
Even if you have offers from debt settlement companies, you still need to make monthly payments. This program can take anywhere from 12 to 48 months. It all depends on how much you owe and how much you can deposit in your set aside account.
What If You Don’t Have Money
It is important for you to be able to make the monthly set aside; it all depends on the settlement company. A reputable company will advise you to review your budget and will help you make monthly set aside possible. On the other hand, a disreputable company will advise you to stop paying the creditors and use the money for monthly set aside.
If you see that a company is telling you to do so, walk away! Make you stop making payments to creditors is illegal. If a company still does this, it is a big sign that you are working with a scam.
It Will Hurt Your Credit Score
The status of the account says, Settled in full, whenever you settle a debt. It will not say, Paid in full, which is not a good sign for your credit scores. Furthermore, this notation will stay on your credit score for the next seven years. When the company calculates your credit score, it will take this into the account, which means debt settlement can affect your credit score.
On the other hand, if your account is already in collections, then this negative remark will reflect in your credit report. If you already have multiple collections, then you cannot do anything about the score. If you already have a bad score, then there are fewer chances of settling a debt.
You Don’t Need to Pay Any Fees.
In 2010, the government Enacted an advance fee ban on settlement companies. A company cannot charge any fee before reducing or settling the credit card debt. It is good for the people as they don’t have to pay any fee upfront. The company has to settle one of your debts to charge you any fee. It also means that there will be no monthly administration fee. If you still need to pay an advance fee, then the company should offer a money-back guaranty. If not! Then it is a sign of a debt settlement scam. You should avoid working with such companies who charge an advance fees or told you to stop paying creditors.
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