Debt settlement companies target financially distressed people and offer to negotiate with creditors on their behalf. These companies do this in an attempt to reach a lump sum settlement for less than the full amount owed. But, this practice exposes consumers to large financial risks.
Here are five facts that you need to know about debt settlement:
1. Creditors are not required to settle for a reduced amount.
2. As the consumer, you are not protected from collection attempts, lawsuits, or wage garnishments while in a debt settlement program.
3. Fees, penalties, and interest rates on unsettled debts may increase if you stop monthly payments to creditors.
4. Defaulting on payments to creditors will hurt your credit score.
5. Any negotiated savings must become taxable income.
Find out more at: www.consumer.ftc.gov/
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