You may have always tuned out the advertisement or credit card debt settlement services until you found yourself falling behind on your payments. All of a sudden, those ads may be the only thing you hear on your daily commute to work. It sounds too good to be true.
You call up a company and explain to them how much credit card debt you have, and they take care of the rest. They call all of your companies and negotiate on your behalf to settle the balance on your cards.
However, this is not a quick fix for your credit card debt. If anything, it may put you in a more difficult situation financially. What are the drawbacks of credit card settlement services?
1. They close your credit cards
If you tell your credit card company that you’re only going to pay back 30% of what you owe, they aren’t going to continue letting you draw against that revolving line of credit. They will close your account. If you have a company come in and settle all of your credit card balances, you may be left without any revolving lines of credit to use for an unexpected financial emergency.
2. They damage your credit
Your credit report shows your history of making on-time payments, the overall balance on all of your debts and information about the standing of your individual accounts. You typically need to maintain your accounts in good standing for them to have a positive effect on your credit score.
When you decide to settle your balances, they can report that to the credit bureaus. It will drag your score down, as will closing all of your lines of credit.
3. They contribute to your total debt
Most debt settlement companies want you to open a line of credit with their business. That’s how they make money. They finance your debt settlement, and then you make payments to them. You may end up still needing to pay off thousands of dollars of debt, and there may be fees associated with the service as well.
Although it may feel extreme, filing for bankruptcy is often the best solution when your debt has reached truly unmanageable levels. Learning more about the basics of bankruptcy and the problems with different credit card debt solutions can help you make better financial choices.