Can debt settlement companies really erase credit card debt?

With so many Americans struggling with bills associated with credit cards, it's no surprise that there are countless offers to erase one's consumer debt. Some Southaven residents may have even received offers from debt settlement companies; these offers often promise to erase one's credit card debt or otherwise negotiate with creditors on your behalf. It's helpful to know more about these offers in order to steer clear of damaging scams.

First, how do debt settlement companies operate? Usually, these for-profit entities encourage debtors to stop making payments to creditors and instead put a certain amount of money in an escrow-like account. The monthly payments are supposed to add up to a lump sum that is then used to settle the account with creditors. Usually, this lump sum is less than the total amount of debt owed, so it is often an attractive option for those who cannot repay their debt.

Not all debt settlement offers are created equal, however. Debtors will often need to carefully scrutinize a future monthly budget that accounts for monthly payments to a debt settlement company; if a debtor cannot make these payments they'll often drop out of the settlement program. In some cases filing for bankruptcy may be more appropriate. For example, Chapter 13 bankruptcy enables a debtor to work with a licensed attorney to determine a manageable repayment plan that results in keeping one's property and getting qualifying debts discharged after three to five years.

Since debt settlement companies often encourage debtors to stop making payments directly to creditors, this can put debtors at risk for creditor harassment. Creditors may still call, write and even threaten to sue debtors during the time the debtor is making payments to the debt settlement company. In personal bankruptcy, creditor harassment must stop immediately and creditors are contacted and apprised of the situation. If a debt settlement firm tells a debtor to stop contacting their creditors, there may be serious consequences for the debtor. An experienced bankruptcy attorney can help someone who has overwhelming credit card debt and needs a realistic and legitimate fresh start.

Source: Federal Trade Commission, "Settling Credit Card Debt," accessed Aug. 8, 2015

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