Helping With Your Financial Future

Why debt settlement programs may not be worth the effort

On Behalf of | Apr 7, 2024 | Consumer Bankruptcy

If you’re sitting up at night worrying about your debts, you’ve probably seen the ads for debt relief or debt settlement programs where they promise to settle your debts for pennies on the dollar.

Have you ever heard the adage, “If it sounds too good to be true, it probably is?” This often applies when it comes to the promises made by debt settlement companies. Here’s why you need to be wary:

There are a lot of scam companies out there

Some of the debt settlement companies out there will promise you all kinds of things – but they won’t actually follow through. They get you to pay an enrollment fee (and maybe a few other fees) to get started, then more fees every month – so most of your money ends up going to pay them instead of your debts. 

You may experience increased collection efforts

Most debt settlement companies tell you to stop paying your credit card bills while you build up an escrow account with their firm. They do that to pressure the credit card companies into taking a settlement offer (which may seem preferable to no payment at all). Until that happens, however, you can generally expect more collection calls, plus interest and penalties added to your existing debts – and an aggressive company may try to garnish your wages or put liens on your property.

Your credit may be deeply damaged

A lot of people resort to debt settlement programs because they’re afraid of what bankruptcy will do to their credit, but debt settlement programs can be even more destructive to their FICO scores. A bankruptcy is a stain on your record, but it wipes out the majority of your debts and you can immediately start to rebuild your credit. Debt settlement may keep you in limbo for years, unable to rebuild until all the agreements are made. That can drive your score far lower than bankruptcy.

If you’re looking for a true debt relief option, you’d be remiss if you didn’t at least consider bankruptcy. Learning more about how the process works may help you decide.