You are stuck struggling with enormous debt, you racked your credit card bills through the roof, and your payments are becoming unmanageable. In short, you’re in way over your head. Though this is obviously not a position that you ever want to find yourself in, the cold, hard truth is that similar scenarios fall upon hundreds of people every week.
If you’ve ever struggled with a similar situation before or know someone who has, then you might be familiar with debt settlement services. These services, while popular and potentially beneficial, carry many misconceptions with them. Using a debt settlement service without being aware of these misconceptions can be dire. You won’t receive the results you’re looking for unless you can sort out fact from fiction.
And that’s what the 5 biggest debt settlement misconceptions listed and discussed below attempt to do.
It Doesn’t Hurt Your Credit Score
As nice as it would be if this were true, the sad fact of the matter is that it is not. Unless you’re very lucky, debt settlement will almost always have some negative impact on your credit score. However, when all of the factors are taken into consideration, this small dip in your credit score might be worth it to get all your ducks in a row as far as debt goes. Remember, ponder your situation carefully and consider credit counseling to see what debt management service will best work for you.
To further elaborate on how debt settlement can hurt your credit score, consider this: the process of settling debt might mark your loan (or debt) as closed, but the negative rating on your credit report will reveal to new lenders that you struggled with debt in the past. This will likely make taking out new loans more difficult.
Debt Settlement Can Damage Your Credit
At the same time as many people have the misconception that these services don’t hurt credit scores, an equally large number of people are under the misconception that it will hurt their scores forever. Though debt settlement will indeed result in a drop to your credit score, it won’t stay this way permanently.
To further highlight this point it’s important to note that it is actually incredibly hard to damage your credit permanently. Even bankruptcy only affects credit ratings for 10 years. In addition, debt settlement services are designed to lower the impact of a settlement on your credit as much as possible. Though your score will definitely drop, it will be off your permanent record within seven years. Plus, at the same time, you can also improve other areas of your finances and try to improve your credit score that way.
Anyone Can Use a Debt Settlement Service
Another one that would be oh so nice if it were true, is just another misconception. Not just anyone can use a debt settlement service. In fact, surprisingly few people actually qualify to use these services as a form of debt relief.
People that qualify for a settlement service are those that just can’t afford to make their credit card payments on time (or at all). At the same time, you must also have a large enough overall income to fully settle your debts. Sound confusing? It is. Basically, debt services don’t want to help you settle your debts if you actually make enough money to pay them back on a regular basis, at the same time, they don’t want to mess with you if your income is low enough where you mind end up defaulting.
Solve Your Own Debt Problems
This is probably the biggest settlement service misconception of them all. Many people think that they can settle debt problems without seeking assistance from a service – and the number of poor-quality debt advice blogs out there only bolster this thinking – but it is actually very hard to put an end to debt without help. At the very least, you will be forced to jump over some pretty big hurdles.
Debt settlement companies can help you (if you quality for debt settlement) because they know the ins and outs of the debt system. Most lenders/creditors won’t even stop to listen to an individual though they will almost assuredly talk to an established settlement company. Working with a debt settlement company can help you negotiate with your lender much more quickly and effectively.
Save Money With Balance Transfers
This debt settlement service misconception is one of the most common debt-related traps that people fall into. What happens is that your new credit card comes with a zero percent interest rate for a certain period of time, so you decide to transfer your balance from one card to the other, hoping to give yourself a break from making payments.
Well, things don’t work that way. You might just save yourself from defaulting if you choose to do this (so it does, in a way, have its benefits), but you’ll almost certainly lose quite a bit of money in the long run. In fact, a balance transfer usually incurs high fees, huge drops in your credit score, and even more debt in the future. It’s best to shoot down this plan from the get go and opt to go with a safer and more effective debt management option.
Though there are many misconceptions out there about debt settlement and the related services, don’t let them control your thinking. Whether the ‘facts’ that you’ve heard about debt settlement are positive or negative, there is a good chance that they’re wrong. When considering debt settlement for yourself, take care to weed out these misconceptions and only look at the real facts. The above advice will help you do this and hopefully help you recover from your overwhelming debt for the long haul.