People are looking for consolidation debt settlement. But before you jump into the first debt relief program that comes along, it is important that you understand exactly what you are getting into. A debt settlement service will not consolidate your debts. The first thing you must be aware of is debt settlement services are “for profit” companies. This means you will probably be paying more for a service than necessary. Truthfully, debt settlement is something you can do on your own and should do on your own if you are serious about getting out of debt.
Most debt settlement companies will have you make payments to an escrow account. They will begin negotiating with your lenders and when there is enough money in your escrow account to pay one of your debts, the company will make the payment. This process will continue until your debts are all settled. But there are many negatives to this type of program and according to statistics, very few people complete the program and the ones that do not complete it are often left in worse shape than before entering the program.
Another problem with debt settlement companies is they do not go out of their way to make it clear that settling your debts will negatively affect your credit. If you have not made payments for several months, this may not be a big deal. Your credit will have already been impacted. The other thing that you have to understand is that you will be taxed on the amount of the debt that is forgiven. If your debt is substantial, what you will owe in taxes could be more than you can handle. If you talk to the IRS, they can set you up on a payment program.
Many debt settlement companies will take a certain amount from your escrow account before they even begin the process of settling debts and then there are the fees that are associated with this process. The fees are usually based on the amount of money that is reduced from your debt. This fee is usually 15%-25% of the amount that has been written off the debt. Now, if you are trying to get out of debt, it makes more sense to be putting that money towards paying off your debt than paying a company to do for you what you can do for yourself.
You may want to consider nonprofit credit counseling on debts that are current. If your debts are 3-6 months past due and you want to settle your debts, you should talk directly with your lender about settling the debt. With the current economy, more lenders than ever before are making settlement agreements with account holders that are not able to pay their balances in full. Once a settlement agreement is made the payment is made to the lender within a very short amount of time. This is a much more efficient way of dealing with this situation than in bankruptcy court.