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.