You may be hearing others in South Carolina complaining about how bad the economy is. This is a perennial worry. No matter how good things are for big industries and investors, the average person still struggles to make ends meet. Perhaps you work more than one job, buy mostly generic groceries and plan to drive your old car as long as you can keep it running. With these sacrifices, you can make your paychecks stretch.
What do you do when those tricks no longer help? When the monthly payments on your debts are no longer affordable, you may spend a great deal of time trying to figure out how to fix things. You may have seen commercials on TV or ads online about debt settlement companies who promise to wipe out your debt in a relatively short period of time. This may seem like the answer to your problems, but you may wonder whether these companies keep their promises.
What settlement companies may not tell you
The concept of debt settlement sounds simple. When you fall behind on your debt payments, you enlist the help of a debt settlement company who negotiates with your creditors to lower your balances. While the negotiations happen, you deposit your monthly payments into a separate bank account instead of sending them to your creditors. When the settlement company reaches an agreement, it divides among your creditors the money you have deposited, and you are free of those debts. However, here are some things you may not know:
- Debt settlement will not stop foreclosure on your home or repossession of your vehicles.
- Choosing the debt settlement option will not protect your credit rating.
- The settlement company may delay many months until your new bank account has a significant balance before beginning negotiations.
- During the months when you stop paying your debts, the creditors will likely continue to add penalties, fees and interest to what you owe.
- Settlement companies often charge a setup fee, a monthly fee for the bank account and a percentage of your settled or eliminated debt, which may add up to thousands of dollars.
- The IRS may consider any discharged debt as taxable income.
Perhaps the biggest red flag you should consider is that not all your creditors will negotiate with debt settlement companies. You may be watching your past due amount climb and your credit rating sink only to learn that the settlement company cannot help you. In such cases, you may be left in worse financial shape than when you started.
When you are feeling desperate, it is easy to believe promises that help is on the way. However, it is wise to seek sound assistance from someone who gives straightforward advice about every available option and has experience guiding people like you through the dark times toward a brighter future.