In the challenging times Floridians have had to endure over the past year, many have had to rely on credit cards to pay for groceries, gas and other necessities. This has led many of them to incur credit card debt so burdensome that they are unable to make their monthly payments, leading to the stress of seeing debt, interest and fees go up and receiving unwanted calls from debt collectors.
When this happens, a person may be tempted to work with a debt settlement company. However, according to the Federal Trade Commission, for a variety of reasons people may want to be wary of debt settlement companies.
Debt settlement companies are for-profit businesses
Most debt settlement companies are for-profit businesses. They claim they can negotiate with your creditors to reach a lump-sum settlement that is less than the balance on your credit card. To make that lump-sum payment, the debt settlement company has you place a certain amount of money in an escrow-like account each month. In doing so, debt settlement companies tell clients not to make any more monthly payments on their credit cards.
Risks involved with working with a debt settlement company
There are a variety of risks people should be aware of before signing up with a debt settlement company. First, oftentimes people have a hard time making the necessary escrow payments over the course of time (usually 36 months or more) to reach their lump-sum settlement and drop out of the program meaning they still owe money to their creditors.
Second, the credit card companies are under no obligation to agree to negotiate a settlement offered by the debt settlement company. If you have multiple debts, the debt settlement company may only try to settle the smallest debts first, meaning interest and fees will continue accumulating on your larger debts.
Third, if you stop making monthly payments on your credit card debt as instructed by the debt settlement company, this could negatively impact your credit score. In addition, a settlement may not stop actions by debt collectors. It is even possible that you could face a lawsuit from your creditors for repayment.
Learn more about your debt relief options
As this shows, you should be wary of relying on a debt settlement company if you are facing overwhelming credit card debt. There are other debt relief options that may be a better fit, including filing for bankruptcy. To learn more about debt relief and bankruptcy, you can explore our firm’s website for further information.