First Person: Do Debt Settlement Companies Really Work?

When it comes to debt settlement (also called debt negotiation) companies' claims of being able to settle outstanding debt for pennies on the dollar, you should not believe everything you hear. Even if a debt settlement company can successfully negotiate with your creditors to reduce the amount of your debt, the settlement could reflect negatively on your credit report for years to come.

Any debt negotiation firm that claims to be non-profit should be thoroughly examined. Check with the Better Business Bureau to make sure no claims have been filed against the company. Make sure there are no hidden fees and do not give these people any money at all before thoroughly examining a written agreement stating what services are they are offering and how much you are going to be charged.

You have no guarantees your creditors will accept the offer from the debt settlement company. In fact, many companies are refusing these settlement offers. These agencies often advise customers to stop making payments on their debts and instead give the money to them, which they will hold in a special account, to pay off your creditors. If the creditor refuses the offer from the agency, you continue to access late fees to your account. You may end up in worse shape than it was when you began.

There are better alternatives to debt settlement companies. If you are not able to construct a personal budget for yourself, there are many credit counseling agencies that charge no fees. You can request free materials, attend debt management workshops, and learn how to start developing a personalized debt management plan. For more information about reputable credit counseling agencies, check out Choosing a Credit Counselor from the FTC.

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