If you have found yourself in a position where you are considering using a debt negotiation company, there are several things that you should first consider.
Debt settlement companies promise to save you money on debt repayment, but they often tack on hidden fees that add up quickly. In fact, you may end up in greater debt than when you started!
Settled debts often need to be repaid in a lump sum. If you are unable to come up with the entire payment, you may not be able to settle the debt.
Some creditors will not even work with a settlement or negotiation company.
Often the money you pay upfront for your debt repayment, goes straight towards the debt settlement company through fees. Instead of making progress towards reducing your debt, you may find yourself in more debt or in the same spot you started.
The negotiation company may ask you to stop making payments, which could result in a delinquent account. Remember, delinquent accounts show on your credit report, resulting in your score being lowered. You could also be sent to collections or be sued for the delinquent debt.
The interest & penalties on your debt will not stop accumulating during negotiations. You will likely end up paying more if debt is settled through fees. Many charge a fee based on the percentage of each settled debt (calculated on the debt’s balance when you first enroll with their company). Some even charge a fee based on the eliminated debt. This is one reason why it is important to read the fine print before agreeing to work with a debt settlement company. Other fees can include monthly payments and set up fees.
If a debt settlement is successful, the portion of the forgiven debt can be considered taxable income by the IRS. So, you may need to pay taxes on the forgiven debt.
When using a debt negotiation company, you run the risk of receiving a lawsuit, judgment, wage garnishment, and/or bank levy.
If you are in California and want more information, contact us today to set up a free consultation. If you live outside California, contact a local attorney to find out what options will work best for you.