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Is Credit Card Debt Settlement a Good Credit Card Debt Solution?

Don’t Fall for the Siren-Song Pitches of Credit Card Debt Settlement Firms

These credit card debt settlement firms promise to take care of your debt problems for you. They communicate with your credit card companies so you do not have to. The problem is using them puts you out of the loop with your creditors. You do not know what is being communicated about your finances. You do not know how your creditors are responding. Tread carefully with these firms, or even better, avoid them.

The online debt forums offer many stories of credit card debtors being victimized by these debt service organizations.

Debt negotiation and debt settlement are essentially the same thing. You sign an agreement with an organization providing debt settlement/negotiation services. You do not make your monthly credit card payments. Those monthly payments go to the settlement firm. Your money is NOT disbursed to your credit card accounts. Instead, your money accumulates to enable a debt negotiation or debt settlement for 50-70 percent of the debt (more or less depending on the claims of individual settlement firms) once there are “sufficient” funds to begin negotiating less-than-full-value, lump-sum, paid-in-full payments. The debt settlement firm’s fees come out of your accumulated funds before any creditors are paid.

The simple fact is the math just does not work when you have to pay for debt settlement. So you stop making monthly payments to bank funds to enable you to negotiate a reduced balance by offering a lump sum payment. As a debt settlement strategy that makes sense. However, if you are paying for debt settlement, that makes no sense because the debt settlement firm’s fee, which is typically in the thousands of dollars, comes out of your settlement fund.

To look at it another way, the best time to negotiate a reduced balance lump sum payment is about six months after you stop making payments. That is when the credit card bank is about to charge off your account and sell it for pennies on the dollar. If you account balance is $12,000, and you have saved $6000, you might be able to get the bank to take the $6K as payment in full. But, if you are with a debt settlement firm, $1500 - $2500 needs to first come out of your settlement fund for settlement “fees.” Is the bank then going to settle for $3000?

Here are five reasons to avoid debt-settlement firms from SmartMoney.com -
http://www.smartmoney.com/spending/rip-offs/reasons-hiring-a-debt-settlement-firm-is-not-always-worth-it/.

The best, and most cost-effective, debt settlement strategy is to do it yourself or hire an attorney at a reasonable cost.

Get the whole story in the Credit Card Debt Survival Guide.

Chapter 5: Credit Card Debt Settlement pp. 5.1-26

Working with Your Creditors   
Settling on Your Own        
Basic Debt Settlement Strategy
Getting Your Story Straight      
Settling with Credit Card Banks
Negotiating Tips  
Settling with Collection Agencies        
A Debt Settlement Checklist    
Agreement to Settle a Debt      
1099-C Issuance   
Two Debt Settlement Publications     
Interviewing Debt Settlement Resources      

Educate yourself and become confident with the Credit Card Debt Survival Guide.

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