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There are numerous debt settlement companies present in the market these days. It can be very easy to get carried away with all the enticing advertisements and promotional materials these debt settlement companies send out. However, you need to be practical before taking a decision on the genuineness of these companies. Here are a few startling facts about debt settlement companies that no one else will tell you about.
Gauging their true performance
Most debt settlement companies promise to slash existing customer debts by as much as 50% or more. However, statistics reveal a completely different story. Most statistics and figures point to the fact that credit card liabilities are increasing by the minute. Here's the question – if these debt settlement companies are so good then why isn't the debt rate slowing down?
The way they operate
The way most of these debt settlement companies operate is by enticing customers to stop making payments on their credit card bills. This money is instead diverted into the accounts of these debt settlement companies and eventually the money continues to accumulate. Finally, after due negotiations, these debt settlement companies use this money to pay off your debts.
Their source of profit
You may have asked yourself many times how these debt settlement companies truly end up making a profit. The answer is – through the funds you deposited. Yes, that's right. When you stop payment to your credit card company and instead pay these debt settlement companies to settle your debt, they take as much as 25 to even 50% of this fund to gain a profit.
Income tax liabilities
The funds that get accumulated by the debt settlement companies to pay off your debts are actually taxable. So, let's say you have paid your debt settlement companies around 150,000 dollars they take around 25% of the money. So, their profit is 37,500 dollars. The remaining amount that has been accumulated for debt settlement is actually going to be taxed. Hence, this adds on to your liabilities.
No refund possible
Most of the debt settlement companies have a policy that if money gets accumulated in their funds for the purpose of debt settlement then it cannot be refunded at a later date. Thus, even if you decide to discontinue business with these debt settlement companies your money will not be returned to you!
Many of these companies do not make any payments!
Unlike what most people believe, many debt settlement companies do not make any payments towards your creditors. Instead, what these debt settlement companies actually do is to negotiate your situation with the credit card company to reduce the debt – that's it. The funds paid towards your outstanding debts need to be paid by you and they take a fee for the negotiations that they initiate.
It can take a long time
The process of sending monthly payments to your debt settlement companies and then waiting for the funds to accumulate to a sizable amount for repayment can take many years to happen. If you are opting for debt settlement companies that do not have a solid track record then you can be sure that collections calls and such actions will not be handled by these debt settlement companies. So, while your funds keep accumulating and you have stopped payments to your credit card company, you may continue receiving threatening calls from collection agencies if the company is not sending the money monthly.
Debt settlement companies are essential parties to debt negotiation. Credit card debts are a major problem with many individuals. Even if you miss a single payment, you would be forced to pay a large amount of money to the company. The credit card companies would consider every single day after you miss payments and then apply a higher rate of interest to the amount you owe. In this way, the interest builds up and you have to pay an even larger sum of money. If you are having recurring debts and if you are not able to pay off all of them, then you can get the help of debt settlement companies.
What debt settlement companies can do for you
With the increasing number of debtors, there are a lot of debt settlement companies that can help people get rid of their debts. Basically, these companies will negotiate with your creditors to lower the amount of money you have to pay the former. Certain companies may offer you to pay back 50% of the actual money you owe them. Creditors would accept this type of offer proposed by debt settlement companies due to the fact that they want all things cleared and settled. They would rather have a lower amount of interest than the possibility getting nothing from you if you would file for bankruptcy and be declared insolvent.
You can expect the debt settlement companies to reduce or cancel late fees and other fees imposed by the creditors. These companies would arrive at a settlement plan for you so that you can pay off your debts in a few years and stay debt free after that.
Many people think that these companies take the responsibility of paying your debts. Debt settlement companies merely act as mediators between debtor and creditor, not another loan company at that. You cannot expect these companies to pay off your debts just for paying a small fee. You have to know that the services offered by debt settlement companies are not debt consolidation services.
What should you pay for the services
Debt settlement companies are profit organizations which would charge you a fee for the services they render. A set up fee is common with most of the companies. You have to pay the company for arriving at a settlement plan for you.
The settlement company will then negotiate with your creditor and reduce the amount of money you are obliged to pay. Certain companies will pay the creditor on a monthly basis while others pay the creditors a lump sum amount after you have accumulated a specific sum of money in your trust account. Expensive debt settlement companies will charge you for maintaining your account.
Some mishaps on the services of debt settlement companies
Though the debt settlement companies promise that your creditors would not sue you, there are possibilities for such mishap to happen. After negotiation, if you are unable to make regular payments or if you miss your payments, the creditors can sue you and this would have a very bad effect on your credit rating. The result of everything lies in your discipline to pay for what you owe. Remember that debt settlement companies are negotiators and their services can only be possible if you would want them to do things for you.