Debt settlement companies are a dime a dozen. They are often seen on TV ads, heard over the radio or in print media promising heaven when it comes to getting rid of your debt. While this may all sound fine and dandy, these companies have a hidden underbelly that only those who have dealt with them know about. Being debt free brings with it feelings of joy and relief; however, when dealing with a debt settlement company, this relief may morph into dread and regret a few years down the line. In this post, we’ll take a look at some of the reasons why a debt settlement service isn’t always the best idea.
How Debt Settlement Companies Work
Debt settlement companies reduce your debt by contacting your creditors on your behalf in order to negotiate with them to get your payments or interest rates lowered. That being said, there’s a catch, and that is their commission. For example, they may get one of your credit card providers to lower your debt by a hundred bucks every month. However, you’ll have to pay the settlement company a commission which will eventually take a chunk off the hundred bucks you would have saved.
Credit Settlement and Your FICO Score
In addition, debt settlement companies may severely hurt your FICO score in the long run. By convincing creditors to forgive your debt, your FICO score may plummet since creditors will pass on this information to the major credit bureaus who take into account how a debt was paid off. Most of these debts are usually marked as ‘settled for less than agree’ which will show up in your credit report, subsequently putting a dent on your record for as long as 7 years.
Inflated Interest Rates
Debt settlement companies are motivated by self-interest. These companies also do not see way into the future, and may not disclose to you what’s going to happen to you half a decade from now. The truth is that using their services can cause creditors to hike up your interest rates. It’s not uncommon for settlement companies to ask that your payments be spread out for a number of years. This effectively means that you’ll have to pay more money in the long run due to the accrued interest rates over time.
It all Starts With You
A lot of people think of debt settlement companies as Christ figures or saviors. However, the truth always lies in the fact that not a lot of us are willing to rein in our spending habits in order to get out of the vicious cycle of debt settlement once and for all. If you find that you’re always in debt, it may be a better idea for you to seek out the services of a credit counselor who may provide you with tools to help you keep your spending in check so you don’t have to go to settlement companies. In addition, credit counselors are usually belong to non-profit entities whose goal is to see people out of debt, making their motives clean and almost noble.
Before calling that debt settlement company, look to alternatives that may work in the long-run to help you make behavioral changes that will go a long way in reining in your spending going forward.