6 Reasons to Avoid Debt Settlement Firms

You'll Pay a Hefty Price

Debt-settlement companies charge fees that often run into the thousands of dollars. Payment structures vary. Some companies charge 13% to 20% of the consumer’s total debt, which gets paid over the first 12 to 15 months, according to the National Foundation for Credit Counseling (NFCC), which represents nonprofit credit counseling agencies. Other companies charge up to 35% of a projected settlement amount. For someone with $50,000 in debt that’s as much as $10,000 in fees that need to be paid before the consumer can start paying off the settlement itself.

Expect the Process to be Contentious

Most banks strongly oppose working with debt-settlement companies. The reason? Debt-settlement companies instruct clients to stop paying their bills in order to save for a future settlement. (The savings are deposited in a special account, from which the debt-settlement company withdraws its monthly fee.)

Attrition Rates are Astoundingly High

If you decide to go the debt-settlement route, the odds are stacked against you. While debt-settlement companies don't release their completion rates, a look into the records of one organization -- the National Consumer Council, which the Federal Trade Commission sued for misleading advertising and shut down in 2004 -- paints a grim picture. Of the company’s 44,844 clients, only 638 (a meager 1.4%) successfully completed the debt-settlement program. Nearly half (43%) canceled after paying an average $1,780 in fees.

You'll Have to Pay Taxes

It's a fact that the IRS Code requires you to pay income tax on debt forgiveness, which is what you get when a debt settlement company settles a debt of yours for less than the balance due. It's the same as if you made a withdrawal from a tax deferred pension plan or 401K. That's just one reason why a debt discharged under the bankruptcy code is so much better than a debt settled which comes with non-dischargeable income tax liability.

A Bargaining Company with No Bargaining Power!

No bargain was ever struck unless two people really want to make a deal! Debt settlement companies attempt to sell their services to you because you want to avoid bankruptcy. All lenders know full well that you don't want to file under Chapter 11 if you are going through a debt settlement company. They will assume that there's a darn good reason why you are not filing for bankruptcy and refuse to deal with these organizations!.

There's no Better Time than Now!

TO FILE BANKRUPTCY ON YOUR DEBTS AND WALK AWAY FOR GOOD!