Dealing With Debt: Debt Settlement

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Maybe you've seen the ads: go to a debt settlement company, cut your debts in half. Is it for real?

If there’s one thing Americans seem to have in common, it’s debt.

“It was very, very disturbing to me. I was harrassed by the credit card company, the bank. I wasn’t sure how I was going to pay it off and still pay all my bills.”
-(Asked not to be identified)

The way this woman… who asked not to be identified… dealt with her debt was debt settlement: offering to settle a debt for less than what’s owed.

“It really only took a few phone calls. And we had reduced that debt, which was over $18,000 to a little over 5 thousand… I think it was $5,400.”
-(Asked not to be identified)

This is the company she hired for help: one of many offering to negotiate with creditors to get them to accept a lump sum of less than what’s owed.

And if you don’t have the lump sum? These companies want you to stop paying your bills and send them the money instead until you save enough to settle your debts. And that’s where debt settlement gets controversial.

“The controversy lies in the fact that there are companies that are doing this unethically. The way they charge the clients very front-end loaded fees.”
-Matt Sheldon, Credit Heaven

In other words, some companies take hundreds of dollars in fees up front… and many get away with it since this business is largely unregulated.

“Like any other industry, there are bad apples. This one in particular has attracted a lot of them because they are praying on people at their weakest moment.”
-Matt Sheldon, Credit Heaven

Bottom line? Just like bankruptcy and debt counseling, debt settlement does have a place in destroying debt. However, it’s a place you have to be especially careful. Ask lots of questions, be super-careful of upfront fees.

Stacy Johnson

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