Debt settlement is an effective way to pay off your debts, but why do most debt settlement programs fail?
If you’re struggling with credit card debt, you might be thinking of enrolling into a debt settlement program. The monthly payments look attractive, but the selling point is the fact that you may be able to pay your creditors about 50% of what you actually owe! Everything sounds great on the surface and you feel like you may have found a program to finally get you out of debt.
However, one must tread with caution when enrolling into a debt settlement program. According to the GAO (source), they’ve found that less than 10% of consumers successfully complete the program. Don’t get me wrong, I’m not here to write a negative review about the effectiveness of debt settlement. In fact, I think debt settlement is a great option to get out of debt for those who are fit for it. Here’s why most debt settlement programs fail:
1. Cutting off communication: If you speak with a debt settlement company, they might tell you that they will send out a cease and desist letter to your creditors to stop the harassing phone calls. This strategy is setting you up for disaster. If a creditor isn’t able to get in contact with you, their next steps may be to escalate your file straight into their legal department. This is an outdated practice that could result in a lawsuit.
2. Enrolling improbable creditors- I encourage you to call a debt settlement company and tell them you have a Discover and Capital One credit card. If the debt settlement company has any idea what they’re doing, they SHOULD tell you that these creditors have a high likelihood to sue and their settlement rates aren’t as attractive as other creditors. When a creditor decides to sue you, your only option may be to file bankruptcy.
3. Sugar Coated Programs — Keep in mind that when you speak with a debt settlement “specialist”, you are not talking to a financial counselor. You are speaking with a sales representative who is concerned with “closing the deal!” They will say anything to get you in the door, even if it means bending the truth a little bit. After being in the program for 4-5 months, many consumers finally realize what a mistake they’ve made.
4. Over extended term — Imagine having a $450 monthly payment on $50,000 of debt for 60 months. Typically with $50,000 in debt, your monthly minimum payments would be over $1,200/month. It’s tough to walk away from this deal isn’t it? The whole point of debt settlement programs isn’t to save money every month, but instead to get out of debt as fast as possible! I would never recommend anyone to enroll in a program that will last over 36 months.
Final Thoughts on Debt Settlement Programs
These are just a few reasons why most debt settlement companies fail. The biggest advice I can give you is to do your research! There’s never a “one size fits all” approach to debt relief. Make sure you look at all the different options before you enroll in any program. You can also contact your creditors as well, and ask for a credit card repayment plan.