So you’re wallowing in debt and you’re not sure what the right choice is. You’ve gone over the options a few times – credit counseling, bankruptcy – and you discover in the process somewhere that there’s one more option: debt settlement. From the get go, this option looks incredibly appealing as it can potentially cut debts in half, making it much more manageable to pay. Then as you begin to do more research you learn that the likelihood you complete a plan such as this is less than 50%. The purpose of this article it help people understand the 3 most common factors that cause debt settlement programs to fail.
Debt settlement involves negotiations with your creditors to get them to accept a lump sum of less than you owe to fully satisfy the balance you owe. Of course, your creditors are not legally required to enter into this type of agreement this because when you signed your credit card contract, you promised to pay the full amount.
Despite this, most credit card companies will accept settlements from consumers, but not all do and the amount they are willing to reduce your balance varies quite a bit. Capital One and Discover have historically been the creditors that are toughest to negotiate with, and consumers with these two creditors may find it tougher to complete a debt settlement program since the costs will inevitably be higher.
What will happen to you 18 months from now?
Most debt settlement plans last between two and three years, and perhaps the single most important cause of people failing to complete their program is because they can no longer afford the payments. Something that was once affordable is now not due either to a reduction in income or an increase in expenses. Life is full of uncertainty and people in debt with little to no savings are usually ill-equipped to deal with these changes. Flat tires, job losses, or an unexpected tax bill can throw you off, and for this reason, debt settlement is usually appropriate for people who have savings to float them when these events inevitably occur.
Which company did you go with?
Not all debt settlement companies are created equally. Some charge steep advance fees for their services (yes, even though this is prohibited by the Federal Trade Commission). Others may charge low fees but are understaffed or lack the knowledge to do the job effectively. Some companies literally have hundreds of complaints from clients about their services. Quality debt settlement companies routinely graduate far more than the industry standard 30% of their clients.
Matthew Mckeon is a writer for DebtShield.com, a website dedicated to educating consumers about debt relief services.