If you find yourself in a bunch and are considering ways to resolve debt, you might think debt settlement sounds like a good option, but it can be a tricky process. Without the proper knowledge and support system, utilizing a settlement company can go sour quickly. Here are the biggest myths pertaining to settlement programs.
1. All companies are created equal.
When you’re considering debt settlement, it’s important to remember that all companies are NOT the same. Some groups will try to scam consumers into paying them outrageous amounts. A company should never encourage you to take out a consolidation loan or charge for their services. Choosing the right people to help you in your debt reducing efforts is crucial. In the end, only legitimate financial counselors will be able to save you time, money and stress.
2. All is forgiven.
Your credit score will still be affected by your decisions no matter what. Paying only a portion of your full debt will influence your credit report, even if it’s a method that is agreed upon by your lender, and an outstanding debt that has since been resolved can live on your report for up to 7 years. So, although settlement programs might seem beneficial when it comes to monthly payments and reducing your overall debt, it ends up negatively affecting your finances.
3. Consolidation loans are the best option.
This isn’t true. Some companies encourage consolidation loans so you can pay off your existing debt, but what they don’t tell you is that interest rates on those new loans can be higher, which will increase your overall debt and the time it takes to pay it off. To put it simply, using loans as a form of repayment is a quick fix that can cause bigger problems down the road.
4. Skipping payments is a good idea.
Many settlement practices encourage you to skip paying lenders in order to make them more accepting of smaller payments, rather than nothing at all. This can actually cause the lenders to increase their collection efforts and allow them to take out a lawsuit in order to receive what they’re owed. All the while, your account continues to collect interest, and you can end up owing more than the initial amount.
5. I’ll never get out of debt if I don’t go through a settlement program.
Though debt settlement may sound enticing, it usually isn’t the best option for debt repayment efforts. There are ways to resolve debt without going through the settlement process. If you’re having trouble meeting your minimum monthly payments on one of more of your accounts, consider utilizing CreditGUARD of America’s counseling services. Appointed counselors will encourage you to learn about your finances and help you plan for future expenses without risking a negative effect on your credit report.
6. I can settle my debt on my own.
Trying to settle your own debt with collection companies can be difficult. Many representatives will make it difficult to negotiate, while others will imply that it isn’t an option. Having the right counselors on your side can get you the best outcome while educating you on how to stay out of debt. After all, that’s their job.
7. Once my debt is settled, I don’t have to worry about it anymore.
In many cases, if a company has accepted the settlement of a debt and the forgiven debt is over $600, the amount can become taxable. This means you might end up having to pay the full balance one way or another after taxes are added in. Not only that, but your credit report will still be negatively affected since you settled in the first place.
Remember that there are many dangers associated with debt settlement. It should only be considered when you find yourself in over your head. Even then, you should research all of your options and find the best company that can represent your needs. Try to gather all the information you can about other debt relief options in order to find the best solution to rid yourself of monetary obligations. Visit our credit counseling page to learn more about our services and see what your next steps should be.