Are Debt Settlement Companies Legitimate?

debt

Despite the existence of debt relief and credit repair scams, there are legitimate debt relief companies out there. That said, choosing to work with a legitimate debt relief company can be risky in its own way and fail to generate desired outcomes.

A potentially more successful way to deal with debt is to consult with an experienced lawyer. With help from your attorney, you can explore various legal options to achieve meaningful debt relief.

What Is Debt Settlement?

Debt settlement refers to paying off a debt for less than its worth or renegotiating the terms of a loan agreement. Creditors may agree to debt settlement because initiating a collection action such as foreclosure may not be as cost-effective as accepting a lump-sum settlement offer or lowering a customer’s interest rate.

What Does a Debt Settlement Company Do?

Debt settlement companies are essentially middlemen in the exchange between a creditor and a borrower. On the creditor’s behalf, the debt settlement company engages the creditor in seeking a loan modification or offering a lump-sum settlement.

Before engaging with a debt settlement company, make sure you fully understand the process and the terms of each company you research. It’s beneficial to have a guide help you work toward debt relief, but more harm can come to your financial situation if you ultimately can’t afford the company’s services or must fulfill unrealistic obligations.

How Does Debt Settlement Work?

It takes spending money to get out of debt. So, whether you hire a debt settlement company or an attorney for help, make sure you factor in the cost of these services when dealing with your current debt.

When you use a debt settlement company, one thing to keep in mind is that you may be instructed to default on your loan payments and make payments to the company instead of your creditor. The idea is that the debt settlement company holds onto your funds while it attempts to broker a lump sum agreement with your lender.

If it succeeds, it pays your creditor and you continue to make payments to the debt settlement company until your debt is satisfied for less than its original value. Debt that is forgiven or cancelled by a lender is generally considered taxable income by the IRS. 

How Successful Are Debt Settlement Companies?

Debt settlement companies may be successful as much as 60% of the time. How encouraging those odds may be to you depends on your financial situation and other debt-relief options you may have explored.

Risks of Working with a Debt Settlement Company

It’s worth mentioning that there are several risks to working with a debt settlement company.

For one, there’s the risk of falling even further into debt. Unlike bankruptcy, which freezes your financial obligations, there is no such pause on your debt accumulation and interest accrual while the debt settlement company brokers a deal.

Also, the debt relief company will likely ask you to default on your payments. That can incur a negative impact on your credit score that can be very difficult to overcome if debt settlement fails.

Ultimately, achieving debt relief hinges on the hope that your creditors will agree to something that will help you, be that a settlement of your debt or renegotiation of your terms. If your debt settlement company and creditors can’t come to such an agreement, you may be in ever greater debt and have a worse credit score.

An Attorney Can Offer More Options

The main problem with almost any debt settlement company is that it lacks flexibility. The person handling your financial situation may be an experienced negotiator and finance whiz, but their assistance has a limit. That limit lays with all of the legal options that a licensed attorney can handle.

Not only can a lawyer help you pursue traditional debt settlement through negotiation, but they can also help you pursue alternative solutions, such as bankruptcy. While you may be convinced debt settlement is what you need, it’s worth sitting down with a lawyer and learning more about legal options for debt relief that may be available to you.

Contact Us for Legal Guidance

The Law Office of Steven J. Hart has more than 20 years of experience helping clients seek and achieve debt relief. There are more ways than one to get out of debt, and it’s worth exploring your options to ensure you come out of debt well.

You can rest assured that the Law Office of Steven J. Hart can render the personalized legal support you need to overcome the financial obstacles in front of you. With help from our highly capable lawyer, your dreams of being free from debt can become a reality.

Learn more about what we can offer during a free consultation. Reach out to the Law Office of Steven J. Hart today to get started.