The Difference Between Debt Settlement Myths and the Real Facts

You have a 'Right' to Settle

 Many people think they have a right to settle, this is not the case. You do have a right to ask, but a credit card company also has the rigth to say no.  You should also understand that if you have good credit without any late payments credit card companies are unlikely to entertain the idea of settling a debt for less than the total amount owed.

The only time a credit card lender is willing to consider a settlement on you account for less than the full amount is when they have a reason to believe that you do not have the ability to pay the debt in full.  Credit card companies are analytical in nature and, so, are going to review your credit report and account history to see if you have been late on payments to them or anyone else recently.

You can stop making payments, but if you do have good credit going 30 days, 60 days, or 90 days late repeatedly will quickly destroy your credit score, which is also commonly known as your FICO score.

Debt Settlement is Always a Good Deal

This is not the case. Especially if you have solid credit. You may think that reducing your $30,000.00 in credit card debt to  $15,000.00 is a superb deal. However, you have to consider what will happen to you credit rating, or score. Missing payments and settling for less than the amount owed will cause your score to plummet quickly. This will result in much higher interest rates and fees on not only credit cards, but mortgage loans, and auto loans. Beyone high rates and fees, it is entirely possible that you will not be able to get loans at all if your credit score is too low.

Debt Settlement Will Help My Credit Score

The exact opposite is actually true.  If you settle your debt for less than the amount owed you will have to stop making payments for a period of time.  These late payments will cause your credit score to drop quickly. In addition, if you settle for less than the amount owed that will also be noted on your credit report

Credit card companies and other lenders review your credit report before making a lending decision. If you have a history of not living up to your obligations they are less likely to lend to you and if they do it will be at higher interest rates and possibly with higher associated fees.

Debt Settlement Companies are There to Help Me

Again, this is untrue. Debt settlement companies are most often for-profit enterprises.  They may have an interest in helping you but usually that help comes at a cost as high as 10% of the total amount owed, and that's the original amount not the negotiated amount.

Debt settlement companies can be useful but you should be sure to shop around if you determine that it is the best option for you  before buying.  You may find that the upfront and extended, or monthly, fees are much lower at one company versus another. 

These myths and facts should help dispell some of the things you may have heard about debt settlement companies. Debt settlement is a big decision in the financial life of any consumer who decides to attempt it. You should be absolutely sure that it is the right choice for you before negotiating settlements yourself or hiring a debt settlement company to negotiate for you.

There have been many advertisements by debt settlement companies on the web and on television and radio painting a perfect picture about how you can quickly resolve your debt.  As with any sales pitch these companies are highlighting the good and not the bad in their offers. The bad often comes at a cost to you, the consumer, in terms of a lower credit score and higher interest rates on other credit cards and future home and auto loans.

If you do decide to go forward with debt settlement and attempt to negotiate yourself it can be a daunting process. Keep in mind that just because a company refuses your first offer, that doesn't mean that they won't negotiate in the future. If you are truly in financial trouble try calling back once a month with the same offer and see what the response is.

Always remember to be polite. Credit card companies and especially debt collectors talk to people that are rude and mean many times a day. If you are polite you may find that they are more willing to help you and help you more quickly. If nothing else, your kindness should help move the conversation forward to see what could be a realistic settlement of your debts.

Lastly, if you do call to negotiate a settlement, always rememeber to go in with the details. Be ready to make an offer, tell the company what you can do. If they tell you a number for a settlement, don't be afraid to, politely, counter-offer and explain in detail why the creditor's or collection agency's offer just won't fit in your budget.  Be clear that your goal is to pay off as much of the debt as you can but that you are just unable to pay the full amount due to circumstances beyond your control.