Debt Settlement: 6 Myths to Ditch Today

Published April 2021

 

Debt is a highly emotional problem for many people, and seeking a resolution to it can be fraught with emotion as well. That’s likely why every type of debt relief comes with its own set of myths and misconceptions. Debt settlement is no exception.


Key Points:

  • Debt settlement companies do not want to rip you off.
  • You probably cannot negotiate a better DIY settlement deal than a debt settlement firm.
  • Debt settlement does not work with all types of debts, and it is a better option than bankruptcy.
  • Never ignore your debts, hoping that they will go away. 


Below, we take a closer look at some popular debt settlement myths and debunk them once and for all.

Myth: Debt Settlement Firms are Scammers

A common misconception about debt settlement is that every firm offering such services is out to scam debtors. Responsible for the proliferation of this myth are companies and phantom companies looking to fraudulently cash in on the promise of debt settlement. Having scammed thousands by masquerading as legitimate operations, such companies have given the debt settlement industry a bad reputation.

Reality: Legitimate Debt Settlement Firms Help Clients Every Day 

Legitimate debt settlement companies like ClearOne Advantage operate strictly within the laws and guidelines of the Federal Trade Commission. Legitimate companies like ClearOne Advantage have a BBB A+ rating and never ask for upfront fees. The law forbids such practices. 

Reputable debt settlement companies negotiate with creditors from a much better position than individual debtors and can secure much better deals for their clients.

Myth: Debt Settlement Ruins Your Credit Score

Another common myth is that debt settlement does irreparable harm to your credit score. The truth is that there are very few things that can “ruin” your credit score permanently, and seeking debt relief is not one of them.

Reality: Debt Settlement Does Impact Your Credit Score, But Your Score Does Improve Over Time

In some cases, people choose debt settlement because their credit scores have already disqualified them from choosing another form of debt relief such as a debt consolidation loan. If you find yourself in that situation, debt settlement is a smart option because it enables you to get out of debt more quickly and begin rebuilding your credit earlier than you could do without some type of debt relief. When a debt settlement firm takes over your debt management, it stops making payments to your creditors. These missed payments result in an unsightly mark on your credit report. However, as the company negotiates agreements with creditors and settles your accounts, you may begin improving your credit right away

Myth:  You Can Get a Better Deal if You Negotiate on Your Own

It’s true that, as a debtor, you can contact your creditors and negotiate settlement deals with them directly. That doesn’t mean that you’ll get a better deal, though. The problem with a DIY approach is that successful debt resolution requires patience, negotiating skills, solid negotiating positions, clout, and some knowledge of how the industry works..

Reality: A Reputable Debt Settlement Company Is Likely Able to Make a Better Deal for You 

Your debt settlement company can get a better deal than you could on your own. Why? 

  • It can afford to invest the required time, energy, and effort to get you the best possible deal.
  • It possesses the negotiation skills and the industry knowledge required to obtain a written agreement clearly defining the terms of the settlement.
  • It has experience and a reputation with creditors, both of which work in your favor.
  • The tedious nature of the settlement work will not overwhelm a debt settlement company.

For instance, ClearOne Advantage has a team of skilled negotiators and Certified Debt Specialists who have a history of success in finding savings for our clients..  

Myth: Debt Settlement Works with All Types of Debts

While it would be awesome if this one was true, it just isn’t. 

Reality: Debt Settlement Works for Some Types of Unsecured Debt

Debt settlement only works with unsecured debts like credit card debt, medical debt, some personal loans, etc. It is a debt resolution option that cannot deal with secured debts such as auto loans or mortgages.

(The difference between unsecured and secured debt is that secured debt is backed by some form of collateral which may have to be forfeited if the loan is not paid as agreed and unsecured debt is not.)

Myth: You Should Ignore Your Debt

This is a very dangerous myth. You should never simply ignore a debt problem, even if you think it will “drop off” your credit report in a few years. Nothing is ever that simple.

Reality: Ignored Debt is Bad News for You

Although unpaid credit card debt will drop off your credit report in a few years, it will cause a lot of damage before it does. Furthermore, your creditors and the debt collectors they bring in to recoup your debts may not let you off the hook. They may still file lawsuits against you and attempt to recover at least some of the money owed. Bottom line: Don’t ever simply ignore your debt.

Myth: Bankruptcy Is Simpler and Cheaper than Debt Settlement

Bankruptcy is one of the popular debt relief options, but it is neither cheaper nor simpler than debt settlement. It should be considered as an absolute last resort solution to your debt problems. 

Reality: Debt Settlement Is a Less Expensive, Less Drastic Action than Bankruptcy 

Bankruptcy stays on your credit report a long time, and it entails a complex legal maneuver. Consider bankruptcy a last-resort solution when you run out of all other debt relief options. Debt settlement, on the other hand, enables you to get out of debt in as little as 24-60 months with no permanent mark on your credit report. 

What is not a myth is that debt settlement can save you money. How much money can it save you? Get a free savings estimate to find out.

get a free savings

 

Topics: Financial Education