Back in 2006, BBBs nationally received 86 complaints regarding debt settlement companies. Five years later, the number skyrocketed to 5,385. The FTC says debt settlement programs “can be very risky, and have a long term negative impact on your credit report and, in turn, your ability to get credit.”
Online advertisements for debt settlement companies will try to instill fear in consumers that they will be unable to qualify for Chapter 7 and then claim to be a shorter-term alternative to Chapter 13. Debt settlement companies are supposed to work as a sort of savings account, setting up a monthly plan for you until you accumulate enough money to settle the debt.
The first problem with this approach is that you could just as easily do this yourself—without having to pay a fee to a third party. Secondly, working with a debt settlement company will not prevent your creditors from continuing their collection efforts against you. This could not only hurt your credit report, but might also lead to you being sued by a credit card company.
On Friday, I will discuss another route that carries a somewhat better reputation, but perhaps not that much of an improvement with the success rate.
