Washington residents who are teetering on the financial brink are likely searching for viable options to get out of debt. One of those options that might be considered is a debt settlement company.
These for-profit companies tout their ability to settle debts for pennies on the dollar, an offer that sounds too good to be true. They engage in negotiations with companies on behalf of debtors, trying to get them to settle for a much lower amount than what is owed.
Typically, the companies ask debtors to squirrel away so much per month until they are able to make this lump sum payment. This money is then transferred into an account similar to an escrow account until the debt can be paid down. Companies may even ask that debtors stop payments to creditors until this is paid.
But the Federal Trade Commission urges debtors to consider the inherent risks before signing on the dotted line with these companies. Some risks include:
-- As creditors are not obliged to accept settlements for less than the full amount, it's possible the company won't be able to settle any debts or only settle small ones. Others may continue to mount, accruing interest.
-- Some programs require deposits for three or more years before a debt is settled. This can prove to be an onerous burden for many debtors.
-- Credit ratings can tank even further if payments aren't made for these long periods and interest, penalties and late fees can drive consumers deeper into debt. Litigation can even arise.
Some are outright scams, making guarantees that they can't live up to or collecting fees before settling debts. What's more, consumers can often make these same settlement arrangements themselves without paying any outside agency fees.
If you are ready to make some serious decisions to get out of debt, it might be time to speak to a bankruptcy law attorney in King County to review your options.
Source: Federal Trade Commission, "Settling Credit Card Debt" Nov. 24, 2014