Is Debt Relief a Good Option? 🛟

If you’re carrying credit card debt, chances are you’ve seen those advertisements from debt settlement companies that promise to negotiate with your creditors and settle your debt for a fraction of what you owe. Is it worth it? Lets dive into the details of working with a debt settlement company:

What is Debt Settlement/Relief? 💭

Debt settlement is essentially a negotiation service. You’ve probably heard of National Debt Relief, Accredited Debt Relief, or Freedom Debt Relief. These companies work by negotiating with your creditors to settle your debts for less than what you owe. The program is geared towards people who are nearing bankruptcy and have nowhere else to turn - making them often a bit restrictive and pricey. We don’t recommend this for people who are able to make their payments.

They negotiate with the creditors by offering a lump sum payment to your creditors in exchange for them forgiving part of your debt. The idea is that you pay the debt settlement company a monthly fee, and they use that money to negotiate with your creditors on your behalf.

Does It Work? 👀

Well, that's a bit of a tricky question. Debt settlement companies can be effective in helping people settle their debts for less than what they owe. But there are a few things you should know before you look into it:

  1. First, debt settlement companies typically charge a fee for their services. It’s typically quite hefty at 15-25% of the total amount you owe. They don’t typically charge you upfront though because they know you don’t have the cash. For example, if you settle your $4500 debt to $2100- you would end up paying about $900 in fees.
  2. Whatever the cost is, you'll be paying the debt settlement company to negotiate with your creditors on your behalf.
  3. Second, debt settlement can have a negative impact on your credit score. When you settle a debt for less than what you owe, it's considered a "settled" account on your credit report. This can be a red flag to future lenders, as it suggests that you weren't able to pay your debts in full.
  4. Finally, there's no guarantee that debt settlement will work for everyone. Your creditors might not be willing to settle for less than what you owe, or they might not be willing to work with a debt settlement company at all.

Can you DIY it? 🎨

Depending on your situation, you could avoid having to pay debt settlement fees by handling your debts in another way. Consider your options across the board, including balance transfers and debt re-finance. If you have that negotiation power in you, you could always try to negotiate with the creditors yourself! 👩‍⚖️

So, should you work with a debt settlement company? Well, that's ultimately up to you.  It's important to understand the fees involved, the potential impact on your credit score, and the fact that there are no guarantees that debt settlement will work for everyone. As always, it's important to do your research and weigh your options before making any financial decisions.

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