How Debt Settlement Companies Make Your Credit Worse

Written by on August 10, 2013 in Money - No comments | Print this page

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Debt Past DueGetting into debt is not only fun but also easy.

From buying that gorgeous pair of shoes to shopping for expensive diamond earrings, all the consumer needs is a small piece of plastic to make it happen.

While getting into debt is no end of entertainment, recognizing how bad the debt is can be an extremely scary experience. This is why so many unscrupulous debt settlement companies can prey on people who are desperate to get out.

There are a large number of debt settlement companies out there looking for clients.  Some of them are good, particularly the non-profit agencies, but many of them are bad news.

They aren’t trying to solve people’s problems — rather, they are looking for desperate people in order to take advantage of them.

In many cases you will end up far worse off than when you started if you end up dealing with one of these companies.  This is a common story that is being experienced by millions of people around the world.

Throwing Good Money After Bad

To recover, one of the first recommendations for handling these concerns is to reduce and eliminate the debt as quickly as possible.

This is not the goal of some unscrupulous debt settlement companies since they are charging their clients substantially high rates to secure their services.

The substantial amounts that they charge is added on top of the debt that the person currently owes. These practices will only lead to greater financial problems for their clients.

Bad Advice

One tactic that these companies use to provide immediate debt relief is to advise their clients to quit their monthly payments.

This tactic is proposed in order to create artificial leverage with the creditor, so that a reduced settlement offer can be made later.

While this will occasionally work in terms of settling the debt, it will lead to months of missed payment entries on your tradelines in your credit report.

Some companies will even take monthly payments from you while employing this tactic without your knowledge, hoping to make a settlement offer and keep the difference.

Misrepresentation of Facts Lead to Lawsuits

When a company employs this tactic without the customer’s knowledge it can lead to serious problems.  While their clients believe that their over due accounts are being settled via a legal process, the creditors are under the impression that you are intentionally ignoring their debt.

Unfortunately, the client may discover the unethical practices the hard way when they are receive a summons to court. In some of these situations, an over due monthly bill can be transformed into bankruptcy on their credit history.

Due Diligence

When you work with a debt settlement company, don’t treat it like a black box.  An honest company will have nothing to hide.

Demand to be CC’d on any communications with the creditors, and don’t hesitate to request account statements from your creditors showing that your payments are being made.

If you suspect anything is wrong, or if the debt settlement company refuses to provide you with status updates and tries to prevent you from seeing any correspondence, you should cancel your agreement with them immediately.

Taite Wellesely is the founder and managing director of Wellesely Financial.  Years of experience in handling financial matters of all scales has given him a solid understanding of how to succeed financially.

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