People with debts may want to reduce them by way of a debt settlement company. This may be an excellent choice for some people because they have, for example, large balances on credit card accounts that are accruing so much interest each year that they are not really reducing their balances. Debt settlement would benefit most of these people, but a debt settlement company that has its clients’ best interests in mind will suggest they not use their services. These prospective clients are:
1. Consumers with high credit scores
2. People with low balances left to pay
3. Those who cannot afford to complete the repayment plan that will be set up for them by the company
High Credit Scores
Those with high credit scores would see them decrease with a debt settlement. In order to make debt settlement work, consumers need to stop paying their creditors. Creditors are not likely to enter into negotiations if their clients are not having difficulties making their payments, so they will need to be behind by several months. When this happens, their creditors report these missed payments to the credit bureaus and their credit scores suffer.
As debt settlement can hurt people’s credit scores, those with very low balances may not want to risk lowering their scores for the small amount of money they would save with settlement. As the settlement negotiations are ongoing, consumers are not paying their bills because they are paying their debt settlement companies who are saving the money in an account on behalf of their clients. The creditors will continue to add interest and assess late fees to the balance, and if the balance is low, the interest and fees can dramatically increase it.
The Inability to Complete the Company’s Plan
If people sign up for the plan and realize later that they can no longer afford it, they will not be able to obtain a refund on the fees they paid to the debt settlement company. They will have damaged their credit in the process, and they will not be any closer to being out of debt.
A Debt Consolidation Loan
A solution for people who do not believe that debt settlement is the best option for them might be able to consolidate credit cards. When consumers consolidate credit cards, they receive a loan that will make it possible for their credit reports to show their accounts as “paid in full,” and this will help increase their credit scores.