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Discover Why Debt Settlement Is Probably Not The Way To Go

By Michael Redbourn

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Published: 29May2009
Word count: 657
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Millions of Americans are currently suffocating under stifling credit card debt, and more and more are joining their ranks every day, so it shouldn't come as any surprise that many of these people are turning to debt settlement companies that promise to help them reduce their debts.

These companies claim to be staffed by professionals, and they offer to contact creditors and to negotiate reduced terms and balances for their clients, and what's wrong with that?

What's wrong, is that you have to deposit around 15% of what you owe before they'll do anything, and most of them charge a monthly handling fee as well.

Moreover, just to add salt to the wounds, if the company saves you more than $600 then you'll also owe income tax on it.

The number of companies now offering debt settlement services has mushroomed over the last eighteen months, and the sad and worrying thing is that in many cases, they make a struggling person's financial problems even worse.

It's easy to see why these companies are getting so much business though.

Worried people wake up and turn on the radio or television, and they hear and see ads that claim to cut people's debts in half. Half convinced, they open their morning newspapers, or check out the Internet, only to find more fantastic sounding deals.

Not all debt consolidation companies are bad of course, and there are alternatives and safeguards, but the vast majority of Americans that are facing huge debt problems for the first time have no experience, or information to guide them.

If you're having mounting debt problems, then the first thing you should do is to contact your creditors yourself, and while it's unlikely that they will forgive any of your debt, they will often lower interest rates, and will probably eliminate some fees as well.

Almost a dozen top credit card companies recently agreed to help customers that are in trouble, and reports coming in suggest that they're sticking to their word and are genuinely helping people.

If you're still in trouble after contacting credit card companies that either helped you or didn't help you, then your next step should be to contact a credit counseling agency. Their charges are minimal compared to debt consolidation companies, and someone will check out your situation and give you advice for between $20 - $100.

A good credit counseling agency will also negotiate you a lower interest rate, get fees removed, and might even set up a debt management plan, which means that you pay a lump sum each month which gets divided up between your various creditors.

The best way to find reliable companies is to check with your local Better Business Bureau, and also with the state attorney general's office to see if there have been any complaints. Most good companies will also be affiliated with the either the Association of Independent Consumer Credit Counseling Agencies, or the National Foundation for Credit Counseling.

Things like year-end bonuses, home equity, and additional credit cards, often gave people a little breathing room, but since those things are now mostly pipedreams, you might feel that going the debt consolidation route is your only option, other than bankruptcy.

If you do decide on debt consolidation, then be sure to check out any company that you're considering with the BBB, and be aware that if you don't have a big enough lump sum to deposit into a third party account, that many debt consolidation companies will require you to make payments into an account until the total agreed upon amount has been deposited.

Without it, they normally won't, and often can't start negotiating settlements with creditors and if this takes several months then you'll be in an ever worsening situation because of added interest and penalties.

From a credit rating point of view, debt settlement is only one step ahead of bankruptcy and 'paid by settlement' will appear on your credit report, next to your accounts.

The author of this article was a top film sound editor for many years and he produced a film for Columbia at a very young age. He has a passion and a flare for economics, and one of his websites -> Pay Off Debts features the famous Get Free In Three system which has helped a huge number of people get out from under suffocating debts.

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