Prior to filing bankruptcy, some people will try a debt reduction service or debt settlement service. The hope is that, with professional assistance, they can renegotiate their payment terms. The claim of these debt relief companies is that they have the ability to work with your creditors to lower payments, eliminate interest, and possibly even lessen the total amount owed. However, do debt reduction services really work?
Over the years, we have had many clients come to us after trying to use a debt settlement or credit counseling service. Their were motivated by a desire to avoid bankruptcy. Yet, typically, all that happened was they paid high fees and delayed the inevitable. These companies often will encourage you to completely stop paying your bills, causing you to be charged late fees and additional charges. The debt reduction company will then take your money, attempting to use it to negotiate with creditors. There are a few problems with this.
Firstly, debt reduction services will often charge fees higher than those if you attempted to settle debts yourself. Beyond that, many creditors flat out refuse to work with debt services or the service is unable to otherwise negotiate a settlement. This then can lead to the creditor filing a lawsuit to collect the debt. Moreover, during this time, additional fees and penalties are added to your account and there is an additional negative impact on your credit report. So, in many cases, you will end up deeper in debt.
Avoiding bankruptcy is a noble endeavor. But, the better option is for you to communicate with creditors directly. If you take the time to explain your financial situation, there are some creditors who will want to work with you. Unfortunately, there are going to be those individuals which bankruptcy is the only realistic option. In those instances, delaying will only cost you more money.
Do you have questions? What haven’t we covered yet that is important to you? If you would to talk more about debt reduction services, or a related topic, please contact us.