If you are considering using a debt settlement company to help reduce your debts, proceed with caution. The methods some debt settlement companies use to lower balances are unethical and not safe for either your credit score or your wallet.
Facts
The most common method a debt settlement company will use is to request that rather than making regular payments to your creditors, you make regular payments to a settlement counselor who then will allocate the appropriate payments to your creditors.
Time Frame
Debt settlement companies will sometimes withhold payments from your creditors to attempt to negotiate a better settlement deal. The resulting late payment notations on your credit report can devastate your credit score.
Significance
The problem with debt settlement company practices has become so significant that the Federal Trade Commission has released a formal statement of warning that urges consumers to opt for licensed credit counseling services instead.
Considerations
Debt settlement companies often charge high fees for their services, with no guarantee of success. The result is that you could potentially end up deeper in debt after signing up for debt settlement than you were originally.
Options
You can attempt to negotiate a settlement agreement with your creditors on your own. A third-party representative is not necessary to help you settle your debts.
Warning
Some so-called debt settlement companies are not legitimate companies at all and will take your payments and vanish. Get all agreements in writing and request proof of the company's state business license before signing a contract.
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