When you think of debt settlement which services which can help you pay off your debts faster as well as save some money on monthly payments then you should ensure that you do your research properly before you choose a company.
What many people do not know is that debt settlement and debt consolidation are not the same.
Companies that deal with debt settlement charge you a lot of money as an “admin fee” for setting up an account for you as well as a monthly fee for their service. These fees depend on the company as well as how much debt you are in.
These companies take money from you each month but do not pay your creditors. They, instead, put your money in trust accounts and then negotiate with your creditors and pay them a lump sum when there is enough money in your account for you to pay them in full. This can take a very long time, maybe even years to clear all your debts. During this time, you can get sued by all your creditors.
On the other hand, settlement companies do not request your creditors to cease anything like interest, late fees or over limit fees from accruing. This means, that while they are negotiating with your creditors, your will continue growing.
Let us look at an example :
Let us say that you have twenty thousand dollars of credit card debt. Out of this, $10,000 is owed to 1 company, six thousand dollars to a 2nd company & four thousand dollars to a 3rd company. Now, let us say that you agree with a settlement company to pay $250 every month for 5 years. This adds up to $15,000. This means that you would save $5,000. Is that true?
Admin fees would be $750. The payment for the 1st three months goes towards the admin fees and there is nothing that is put into your account until the fourth month.
Also, $50 from your $250 goes to the debt settlement company every month as a service fee. This means that only $200 is going into your account every month.
Most of the settlement companies claim that they can negotiate your debt so that you only have to pay 50% of the amount you owe.
Let us look at the lowest amount owed in the above example. If your creditor agrees to $2,000 as a full payment instead of $4,000. You will take ten months to pay off the debt at $200 a month.
But, the first three payments will anyway be towards admin fees and thus you will take 14 months before you can settle your first credit card.
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