Many people are still feeling the pain of the "Great Recession" that started in about 2008. As more people struggle to make ends meet, debt settlement companies have increased in popularity, claiming that they can help people eliminate their debts for "pennies on the dollar" and improve credit. Many of these companies' claims are wildly overstated, but people still believe them. People should be aware of some of the biggest myths about debt consolidation companies so they do not fall victim to a scam.
Debt settlement companies can cut payments
Many debt settlement companies claim that they lower people's monthly payments on their debts, which is misleading because people do not end up saving money in the end. In some cases, people send a fixed monthly payment to the debt settlement company, and the company distributes minimal amounts to all creditors - usually after the creditor has threatened to send the account to collections. People's credit ratings suffer while the debt settlement companies sit on their money.
In other cases, debt settlement companies offer people debt consolidation loans that have lower monthly payments than people's total debt load, but the debt is spread out over a number of years at a high interest rate so people end up spending more money.
Debt settlement companies are the only option
Many debt settlement companies would have people believe that using their services is the only way to negotiate with creditors for more favorable repayment terms. In truth, people can contact their creditors directly and try to obtain lower interest rates or monthly payments.
Bankruptcy will ruin credit forever
Many people believe the myth that debt settlement companies propagate that bankruptcy will ruin a person's credit forever, and that people should avoid filing bankruptcy at all costs. In truth, people are probably doing more damage to their credit by paying their bills late or not at all and letting interest accrue on the unpaid amounts. People can rebuild credit after filing bankruptcy, after having had an opportunity to reorganize their finances and discharge many debts. Those who struggle under overwhelming debt and do not seek bankruptcy protection are often never able to get ahead, and are unable to improve their credit ratings.
If you have questions about debt relief options available to you, speak with a skilled bankruptcy attorney who can assess your situation and advise you of the best course of action.