Debt settlement programs are different from debt management plans. Debt settlement programs are typically offered by for-profit companies to people with significant credit card debt.
The companies negotiate with your creditors to let you to pay a “settlement,” or lump sum of money that’s less than what you owe to settle your debt. Meanwhile, you have to set aside a specific amount of money every month in a designated account until you have enough savings to pay off any settlement that is reached.
The process can take years to complete.
Before you sign up for its services, the company must tell you:
the fees and any conditions and terms of service
how long it will take to get results
the possible negative consequences of stopping payments to your creditors
how much you must save in a dedicated account before the company will make an offer to each creditor on your behalf
that the money you save in the account, plus interest, is yours, and you can withdraw it any time without penalty
Debt settlement can be risky. If a company can’t get your creditors to agree to settle your debts, you could owe even more money in the end in late fees and interest. Even if a debt settlement company does get your creditors to agree, you still have to be able to make payments long enough to get them settled. You also have to watch out for dishonest debt settlement companies that make promises they can’t keep, charge you a lot of money, and then do little or nothing to help you.
Debt settlement programs also might encourage you to stop sending payments directly to your creditors. They are required to tell you that it can have a negative impact on your credit report and other serious consequences like late fees and penalties that put you further in the hole. You also could get calls from your creditors or debt collectors, or be sued for repayment. Depending on your state’s laws, if your creditors or their debt collectors win a lawsuit against you, they might be able to garnish your wages or bank account, or even put a lien on your home.
Depending on your financial condition, any savings you get from a debt settlement program could be considered taxable income.
Do you have questions related to debt settlement? Call us now 718-674-1245 or message here.