The Better Credit Blog

Good evening. It has been awhile since my last post due to an unforeseen business trip. I was in Orange County, CA for 7 days and have returned to Colorado (it’s 25 degrees and snowing –an undesirable contrast).

As promised, I will dedicate the efforts of this article completely to explaining why you should stay away from debt settlement companies. Thankfully, using a debt settlement company was one mistake I didn’t make. I am guessing that the points I am about to present within this article will be enough to persuade you from going to a debt settlement company, but nonetheless, it’s important to keep this one point in the front of your mind: debt settlement companies are selling you a product regardless of if they claim to be nonprofit.

How Debt Settlement Companies Do Business

Usually you will find that debt settlement companies offer to negotiate your debt with creditors by promising to pay the debt in one lump sum (which obviously creditors love). However, the debt settlement company won’t make this offer until you have secured most of the amount agreed upon between the debt settlement company and the creditor. The agreed upon amount is secured by requiring you to setup a savings account and make deposits until the amount is met. While this can work in some cases, let it be known that in most cases, this will hurt your credit score and cost you more money.

As you may have guessed, debt settlement companies will therefore advice you to stop making any payments to creditors and start making deposits into the savings account you have setup with them. Two damaging consequences will arise from doing this:

• Interest will continue to accumulate on the unpaid debt. Remember, the quicker you can begin paying off a debt, the less you will pay in interest.
• Every month you don’t make a payment to the creditor, your credit report will be tagged with a “late payment” entry. Late payments severely hurt your credit score.

Debt Settlement Companies Charge High Fees

In addition to paying more money in interest fees by taking the advice of debt settlement companies and ceasing to pay creditors, debt settlement companies will also take 15 - 20% of the original debt. Yes, between 15 - 20% in service fees, not 15 - 20% of the amount settled by the debt settlement company with the creditor.

You can save the money in service fees alone by using one of my debt negotiation letters. Cut out the middle man. Settle and negotiate your own debts. You will be amazed at how good it feels to do it yourself, and not to mention how much you will learn about the subject. This is knowledge gained that will certainly insure you won’t get into debt again.

Debt Collectors Will Not Stop Calling You

The folks over at the Credit Boards brought up an interesting point in regards to debt settlement companies. Keep in mind that when a debt settlement company calls to negotiate with creditors they usually make no effort in attempting to stop creditors from contacting you or collecting the debt. Therefore, once a creditor has the knowledge that you are able to save money through the debt settlement company’s special savings account, they will know you have the money to pay them as well. As a matter of fact, they will make an effort, likely, to get a court order demanding you pay them directly.

This can become a problem if you are attempting to settle multiple debts because you will be tied down paying just one. Worst of all, you will now have a judgement on your credit report. The damage can sometimes be worse than declaring bankruptcy.

Debt Settlement Companies Have No Magical Powers

Debt settlement companies attempt to skew the truth by suggesting that they possess some ability to handle your debt that you do not possess. This is false. While their negotiators may have more experience in negotiation (even this is doubtful –because they don’t care), they are bounded by the same rules as you. Unless you are incredibly lazy, you can do everything yourself with a little research and patience. It’s not difficult.

It is my sincere advice that you stay away from debt settlement companies. If you feel overwhelmed shoot me an email and I will attempt to help you. Otherwise start reading through my mistakes to gain the valuable information needed to get out of debt without paying someone to help you.

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