People struggling with debt will often try any solution that seems like it could help them stave off collection efforts. Some companies advertise credit card debt settlement services on the radio and on television. They target individuals who have high levels of credit card debt and brag that they can help those people get rid of their debt for pennies on the dollar.
While credit card debt settlement may seem like an efficient solution to your financial woes, it often causes just as many problems as it solves:
You may need new debt to pay off the old obligations
If you agree to a lump-sum settlement with a credit card company, they will inevitably expect you to pay that amount in full shortly after agreeing to the settlement. If you don’t have money to make a monthly payment, you probably don’t have thousands of dollars to make large payments to your credit card company. The business providing the debt settlement services may offer financing as well, which means that you will then owe a debt to them.
Your credit will potentially take a major hit
Even if you can sell some of your property to get the capital you need and don’t need to finance your settlement, you can expect the settlement to drag down your credit score. The credit card company may report that you did not pay the balance in full, which can limit your future credit opportunities.
Bankruptcy may drag down your score, but it leads to a discharge of your unsecured debts when successful, meaning you won’t have to pay anything back. It also replaces numerous late payments and settled accounts with one large blemish that has less impact on your creditworthiness over time. Learning more about debt relief services might help you realize that bankruptcy is the solution you need.