What Does a Debt Settlement Company Actually Do?

Kansas City Bankruptcy Lawyers Explain the High Risks and Low Rewards

Debt settlement companies claim they will significantly lessen the amount of money owed through negotiation with credit card companies and other creditors. So how does this actually work? To use a settlement company’s services, you stop making payments on the debt itself. Instead, funds are deposited into an account with the debt settlement company. Those funds are in turn used by the settlement company to pay creditors—and the settlement company itself—only after (or if) a settlement amount has been agreed upon.

How Do Debt Settlement Companies Make Money?

The settlement company’s fee is usually a percentage of the amount of money paid to settle the debt. However, choosing to stop making payments on a debt means additional interest and fees will continue to accumulate on the account while negotiations are underway. Some credit card companies flatly refuse to deal with settlement companies, and they file lawsuits against debtors when payments cease.

Not surprisingly, people who sign up with debt settlement companies frequently see their debts grow by as much as 20 percent before a settlement, if such a settlement is ever made at all. There is no guarantee that any debt settlement with a creditor will ever be reached.

Clients might have to resolve at least two-thirds of their debt to take advantage of a debt settlement plan, but many are powerless to reach that mark. The average indebted consumer owes around $30,000, and the number of clients successfully completing a debt settlement program is, unfortunately, less than ten percent.

Debt settlement is mistakenly thought of as an alternative to filing for personal bankruptcy. Many clients who have attempted the debt settlement process, however, end up seeking bankruptcy protection anyway. Settlement companies will try to negotiate your credit card debt, but may not always offer to assist with medical bills or tax debt.

When considering debt settlement as an option, remember that if you stop paying your debts and allow your accounts to become delinquent, it will be reported to the major credit rating agencies and can harm your credit score. That black mark can remain on your credit report for up to seven years and will likely fail to dig you out of debt

My Debt Is Out of Hand and I Need Help

If you are in over your head, consult with a bankruptcy attorney in Kansas City about whether personal bankruptcy is right for you. Unlike risky debt settlement attempts, bankruptcy is a smart way of controlling your debt situation before it can take control of you.

Contact The Sader Law Firm right away if you are considering filing for bankruptcy to ensure that you protect your property and regain your financial footing as effectively as possible.