Due to the economic instability in the present scenario, more and more people are falling in debt and suffering through horrible financial problems. No doubt, it’s not an easy task to pay off outstanding credit card bills every month. Within sometime total amount of minimum dues rises to a huge amount. Hence, they find themselves in a debt mess. You can be one of them. In order to come out of this situation, you might think of debt settlement as a favorable option for your problem.
You might have heard of many debt settlement companies that promise to repair your credit quickly and easily. Although, many of the companies guarantee you a clean credit rating and a hassle free end to all debt problems, but they do not tell you the whole story. These companies sound too good to be true. Here, you need to beware as they might be setting you in a credit card debt settlement trap.
Before you make up your mind to approach a debt settlement company, do consider the ways these companies can trap those with a bad credit score:
Credit card debt settlement traps
1. Fees: There are a few debt companies who charge non refundable fees, regardless of the fact that they are able to settle your debts or not. These companies, generally, charge hefty fees for the services they provide. Debt settlement companies can pressurize you to stop your credit card payments. The payments you were making to your cards are now diverted into the funds of settlement company. This payment is accumulated and a part of it is used by the company as its fees. Most probably, the fees is non refundable in all conditions. So, if you change your mind about settling your debt or even if you want to opt for bankruptcy, your payments are gone. Hence, the fees structure of most debt settlement companies are very confusing.
2. Credit score: Many credit card companies promise you a flawless credit rating. Most likely this promise is just a marketing tactic. The truth, however is, your credit score gets affected even if you opt for debt settlement.
In the process of settling your debt, when you stop paying your credit cards company, debts are actually getting accumulated. In the meanwhile, the credit card company is reporting about your missed payments to the credit reporting agencies. You might be ready for settlement after accruing a certain amount for it, but on the other side, you have a history of non payment stated in your credit report and your scores have collapsed.
3. Taxes: You might get some amount of your credit card bills written off as a part of your debt settlement program. However, you are still responsible for the taxes on the amount you are written off. Most of the settlement companies will not give you this information. Ultimately, you might be out of debt, but you have to pay more taxes.
Credit card debt settlement tips
Above were mentioned some of the traps in which you can get caught easily. Following are a few tips you might use to avoid getting caught in the traps:
1. Do it yourself: You can communicate with your creditors yourself instead of using the services of a debt settlement company. You can ask the credit card and the bank authorities directly to lower your interest rates and fees too. If possible also try to negotiate a payment plan with time. Depending upon a settlement company when you can yourself negotiate with the credit card authorities, is a bad idea.
2. Non profit credit counseling agency: You can also sign up with a non profit credit counseling agency, only after shopping around though. These companies do charge a minimum fees amount, but will offer advice if you are unable to pay your debts. This non profit company may also negotiate with your credit card company for an affordable repayment plan where you can pay your debts over time. You must check BBB accreditation on the company’s website.
3. Bankruptcy: You can consult a bankruptcy attorney about all your options. You may get a free consultation for the first time according to your financial situation. They can sort out the best possible option for you. It might help you with a fresh start in your life.
If you are having a credit card debt, a number of attractive financial solution programs might appear on the surface promising to repair your credit, but instead they can be traps which might get you in more financial trouble.