Beware Some Debt Relief “Solutions” That Might Leave You Worse Off

Don't let debt stress lead you to a bad decision

Image Source: Flickr User aaayyymm eeelectriik

When you’re deep in debt you can’t afford, it is stressful and can leave you scrambling for answers. Some North Carolina consumers try to pay down their debt by drastically cutting their budget and putting every penny into getting their finances under control. Depending on the amount of debt you and how much you owe, this might work. Still others turn to debt settlement companies or draining their financial reserves to deal with debt, but these strategies might leave you worse off than when you began.

What Is Debt Settlement? 

Debt settlement firms promise to reduce your debt drastically and get you back on schedule. Their ads are usually flashy and vow to do miraculous things with your finances. The fact is, debt settlement firms may not be the best choice to deal with a debt dilemma. For-profit debt settlement firms charge for their services and not only that, but the method they use to deal with debt can ravage your credit score.

The way debt settlement works is that you stop paying your bills, like your credit cards, medical bills, etc. Instead, you send money to the debt settlement firm, and they try to negotiate things with your creditors for a lower payoff. But to gain leverage, the accounts must go delinquent. Creditors won’t negotiate on debt for a current account, but on an overdue account, they are more willing to do so.

The Downside to Debt Settlement

Paying less than face value on debt sounds good, but when you stop paying your bills to gain the required leverage, your credit score will drop continually. You may wind up paying less, but your credit score may be ruined. Not only that, but for-profit debt settlement firms charge fees that can be so high that savings from the lowered debt can be meaningless.

It’s important to know that debt settlement can have a much worse outcome than this. For instance, the debt settlement firm might be a scam, and they run off with your money. Alternately, they might not have any success reducing your debt, so you’ve wasted money, ruined your credit, and have nothing to show for it. In many cases, debt settlement doesn’t help and makes things worse.

Ed Boltz, a bankruptcy attorney with the Law Offices of John T. Orcutt and past president of the National Association of Consumer Bankruptcy Attorneys, cautions North Carolina consumers about debt settlement plans. Boltz told the Dallas News about debt settlement, “People think they’re doing the right thing, but their credit scores are trashed, and they’re out all that money.”

Questions to Ask Yourself About Debt 

Before you take extraordinary steps to deal with your debt, you should first consider whether your debt is manageable. Here are some questions to ask yourself:

• Can you pay off your credit cards, medical bills, and personal loans in five years or less?
• Given your debt circumstances, can you afford to save money for emergencies or retirement?
• Are you considering taking money out of your 401(k) or home equity to service your debt?
• Are you being hounded by debt collectors calling you at work, home, and on your cell?

If you answered yes to more than one of these questions, you might need to consider a more serious debt intervention like North Carolina bankruptcy. Bankruptcy typically costs much less than debt settlement services and provides deeper debt relief – and there’s no worry that some creditors can reject it. They have no choice. Bankruptcy wipes out unsecured debt like credit cards, medical bills, signature loans, and some older qualified income taxes.

Don’t be taken advantage of by a debt settlement firm. Before you decide to pursue debt settlement, take out a second mortgage or dip into your 401(k), talk to an experienced bankruptcy attorney about your debt and finances. They can examine your circumstances and tell you if bankruptcy is the best fit for you or if another debt relief measure is more appropriate so you can make an informed decision.

To find out more about the debt relief options available with bankruptcy, contact the Law Offices of John T. Orcutt. Call +1-833-627-0115 now for a free North Carolina bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro or Wilmington.