The way credit card debt settling services work is that they negotiate with lenders, such as credit card companies, on your behalf. They can negotiate lower interest rates, easier payments, or sometimes even having the debt canceled entirely. They sound like a great way to deal with debt, but there are some things that you should know first.
There are a number of possible problems you can run into with these services. Let’s take a look at three of the most common…
They Can Hurt Your Credit Score
When a debt settlement service contacts your credit card company to negotiate on your behalf, the credit card company will often put a note on your credit report stating that debt settlement proceedings are underway. This can cause a drop in your credit score, as well as cause you to be declined for other financing.
You Can Wind Up Paying More
Most debt settlement services collect a lump-sum payment from you that is enough to cover all your payments, and then they distribute the payments to the lenders.
But if they don’t make any of those payments on time, you’re the one that pays for it. This can include more interest plus late fees and other service charges that get added to your balance.
You’re not in control of the payments they’re making, and therefore you can’s manage them as well as if you were handling it yourself.
You Can Run Into Legal Trouble
When debt settlement proceedings are underway, you can still be sued by lenders. Settlement is not like bankruptcy – it doesn’t give you any kind of legal protection, so you’re still at risk of being sued.
Tax Implications
If a debt settlement service manages to get some of your debt canceled (ie. you don’t have to pay it back) it can have income tax consequences. You’ll be taxed on the amount of money that is forgiven, since it is effectively a type of income for you.
As you can tell, there are a number of potential landmines when you start working with a debt settlement company. Before you take the leap, you should always weigh all your options to be sure you’ve done everything you can for yourself.
You can find out more about how to pay off credit card debt on the Debt Reduction Academy website. Visit debtreductionacademy.com/articles/qanda.php now to get a free copy of my Debt R.E.D.U.C.T.I.O.N. System for paying off debt as quickly as possible.
By: W. M. Blake
There are a number of possible problems you can run into with these services. Let’s take a look at three of the most common…
They Can Hurt Your Credit Score
When a debt settlement service contacts your credit card company to negotiate on your behalf, the credit card company will often put a note on your credit report stating that debt settlement proceedings are underway. This can cause a drop in your credit score, as well as cause you to be declined for other financing.
You Can Wind Up Paying More
Most debt settlement services collect a lump-sum payment from you that is enough to cover all your payments, and then they distribute the payments to the lenders.
But if they don’t make any of those payments on time, you’re the one that pays for it. This can include more interest plus late fees and other service charges that get added to your balance.
You’re not in control of the payments they’re making, and therefore you can’s manage them as well as if you were handling it yourself.
You Can Run Into Legal Trouble
When debt settlement proceedings are underway, you can still be sued by lenders. Settlement is not like bankruptcy – it doesn’t give you any kind of legal protection, so you’re still at risk of being sued.
Tax Implications
If a debt settlement service manages to get some of your debt canceled (ie. you don’t have to pay it back) it can have income tax consequences. You’ll be taxed on the amount of money that is forgiven, since it is effectively a type of income for you.
As you can tell, there are a number of potential landmines when you start working with a debt settlement company. Before you take the leap, you should always weigh all your options to be sure you’ve done everything you can for yourself.
You can find out more about how to pay off credit card debt on the Debt Reduction Academy website. Visit debtreductionacademy.com/articles/qanda.php now to get a free copy of my Debt R.E.D.U.C.T.I.O.N. System for paying off debt as quickly as possible.
By: W. M. Blake