A new report issued by the Center for Responsible Lending indicates that consumers who enroll in a debt settlement program may increase their debt by as much as 20%.
What Is Debt Settlement?
Debt settlement can occur when a company you retain negotiates with your creditors to accept a lump sum that is less than the amount you owe. Unsecured debt, such credit card and medical bills, are usually eligible for settlement. In a typical case, a consumer will contact a debt settlement company, enroll in a program, and pay a fee once the debt is settled.
It sounds great, doesn't it? But problems can and often do ensue.
The inherent problem of the debt settlement process is that these types of companies advise its clients to stop making payments to creditors. Ostensibly, this tactic is used to communicate to the creditors that the consumer is in trouble and to further entice the creditors to accept partial payments. However, when consumers stop paying their bills, their credit score plummets.
In addition, there are times when creditors refused to negotiate the debt owed. In those cases, consumers can become embroiled in continued collection activity and lawsuits.