How Reliable Are Credit Card Debt Settlement Companies

Credit card debt settlement companies are always trying to lure customers with attractive offers. Such offers of reducing debt payments by more than half are very tempting for people who are unable to keep up with their credit card payments and are getting buried deep into debt.

The important question is: Are these advertisements of the so-called debt settlement companies reliable? Of late, many doubts have been cast over the debt settlement industry.

Flawed Method

Let us see the usual model followed by debt settlement companies. When you sign up for a debt settlement program, the company will ask you for a lump sum. It will use this money to negotiate with the debtor, offering the debtor this amount in return for getting the debt settled.

Unfortunately, this model of settling a debt does you more harm than good. Occasionally, the company may not be able to settle the debt for you. Whether it fails or succeeds, you will have to pay the company a part of the amount as fees.

The negotiation tactic used by the debt settlement companies is to delay the payments on your debt. There will be no payment made to settle your debt for at least six months, after which your debt would be written off as a loss. The debt settlement company will then approach the credit card company and make an offer. At this time, the credit card company will be more than eager to settle the debt. Your money is held by the debt settlement company for a long period before being used to settle your debt.

Bad Credit

This entire process will clearly upset your credit score owing to the large number of missed payments. Moreover, the debt settlement companies are not really reducing your debt. If you are ready to take the risk of a low credit score, it is better to approach the lender directly and negotiate for settlement. You will save yourself from having to give any money to a middleman or increase of the interest rates and penalties on your debt.

Risk of Fraud

Some debt settlement companies run a scam and deceive customers. They might take their fees and then disappear. You might end up in a situation of increased debt, poor credit score and further loss. Think twice before putting your faith in any debt settlement company. It is easy to get attracted to their marketing gimmicks, so exercise caution.

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