Myths and truths about debt settlement
When you enroll in a debt settlement program, a representative from a debt settlement company tries to negotiate with your creditors so as to reduce your outstanding balance. The representative of the settlement company tries to reduce it by about 40-60%.
Debt settlement myths and truths
Usually there are a lot of myths associated with a debt settlement program. You must know the truth about all of these myths so that you can safeguard yourself against all kinds of wrong information. Read and find out the ultimate truth regarding debt settlement.
1. Myth- A debtor can reduce the outstanding balances by 50%.
Fact- As a market savvy consumer, you need to know that a debt reduction of 40-60% generally takes place. However, they may settle for less than 40%, generally the creditors are happy to accept such an offer. In some cases few creditors don’t wish to cut down the total debt and prefer to decrease the interest rates or simply waive the annual fees.
2. Myth- Creditors and debt settlement companies don’t work together.
Fact- Contrary to this myth, the creditors actually prefer working with debt settlement companies. In case the debtor files bankruptcy, then the creditor wouldn’t get a single cent. Therefore, they settle for less rather than not have anything at all.
3. Myth- Debt settlement companies stop collection calls.
Fact- In actuality, a debt settlement company doesn’t have any real legal power to prevent creditors or collection agencies from making harassing phone calls to you. The one that can actually do that is a law firm. As per the FDCPA (Fair Debt Collections Practices Act), the law firms have the legitimate power to stop collection agencies or creditors from calling you.
4. Myth- Debt settlement doesn’t affect your credit score.
Fact - This is not true. When you are paying off debts through a debt settlement program, you are not paying the full amount and therefore your credit score may go down by several points. Your credit score may go down since you failed to fulfill your obligation to the creditor. Paying just a fraction of the sum that you borrowed isn’t acceptable by your creditor. Moreover, when you settle your debts, usually the account statuses get updated as “Paid as settled”, which is a negative mark on your credit report.
It is hoped that the above points have helped you to know the real truth regarding debt settlement program. Gaining the right kind of knowledge would help you get rid of debts through settlement.
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