Do Debt Settlement Programs Reduce Credit Card Debt?

Debt settlement programs are a means of achieving credit card debt reduction. Many debt settlement companies claim that they are able to write-off up to 50% of the amount owed through a negotiation process with creditors.

Why Do People Turn to Debt Settlement Programs?

The majority of those seeking a debt solution have already defaulted on the terms of their credit agreement. Several months after this occurs, the debt is either assigned or sold-on to collection agencies who pursue you for full repayment. Whilst there are rules that need to be followed, the terms offered are rarely favorable. This leads to the need for a more affordable option.

What is a Debt Settlement Program?

A professional debt negotiator will liaise with a credit provider in order to achieve credit card debt reduction. The aim is two-fold:

- Credit card debt reduction of up to 50%.

- Affordable monthly repayment over a period of between 12 and 36 months.

Provided repayments are maintained for the full term, any remaining debt is written-off. This means that you would be debt-free.

Debt Settlement Companies

It may not come as a surprise to discover that this negotiation process is not a free service. The major criticism levied against them is that the fees are front-loaded.



Debt Settlement Companies Receive Payment First

The debt solution provider, not the creditor, receives their money first. This can lead to creditors and collection agencies becoming dissatisfied and continuing to pursue you for repayment.

Credit Card Debt Reduction Not Achieved in Short-Term

The front-loading of management fees means that the amount owed actually increases in the short term. It can take several months before any debt starts to be re-paid.

The Debtor Stops Making Payment

If you stop contributing to a plan, the amount owed is likely to be higher than when you first started. This is particularly true for those who stop contributing in the first few months as the management charges won't have been cleared.

There have been a number of horror stories regarding debt settlement programs in recent months. However, provided you do your research on the company, avoid front-loaded plans and only sign-up to an affordable monthly repayment plan, all of the above problems can be avoided. It is possible to achieve credit card debt reduction in less than 36 months.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.