Most people who commute for their job have heard pitches from a debt solution company at some point on the radio. Some companies advertise consolidation, offering to let people cut the interest rate they pay on their credit card balances. Other companies may offer debt settlement services, which promise to let you address all of your outstanding debt without paying it in full.
For someone struggling with a very tight budget, either of these options may seem beneficial. A solution that helps you get your debt back under control could assist in putting an end to collection efforts by creditors.
Unfortunately, quite a few people find the promises made by so-called debt solution companies are too good to be true. Some are outright scams. Others cause as many problems as they solve. The results of the services might be even worse debt and financial hardship than someone had to deal with before using one of these companies.
Most debt solution services are for-profit companies
A company that calls and negotiates with creditors to reduce your total balance can’t do so on a volunteer basis. They need individuals skillful enough to manage complex financial negotiations. Even if the company theoretically had no other overhead, they would still need to generate tens of thousands of dollars or more to cover the cost of retaining skilled staff.
The money that covers their advertising, staff costs and other expenses doesn’t come from grants or public funding because these companies aren’t non-profit organizations trying to help people. It comes out of the pockets of people who use their services because they are companies looking to make a profit.
Debt consolidation companies will collect interest and may charge fees to offer you a loan. They may also require a deposit held against any amount they pay. Debt settlement companies will charge you a portion of what they successfully save you from paying, all without being totally upfront about the fact that settlement can impact your credit negatively. With either of these services, you could easily find yourself carrying a similar or higher level of debt shortly after using them.
Bankruptcy offers a permanent solution to your outstanding debt
Debt settlement and consolidation often involve taking out new loans to cover old debts. Instead of getting rid of your debt, what you were really doing is moving it from one company to another. Although bankruptcy has its own complications, it does offer a permanent solution to your unsustainable debt.
Instead of just shuffling debt around, bankruptcy allows individuals to discharge their unsecured debt and move on with their lives. If you truly cannot manage your current levels of debt, bankruptcy may be a better long-term solution than any for-profit debt solutions service.