Credit card settlement services are relatively common. Businesses promise consumers struggling with credit card debt a quick and effective solution. The idea of taking a $5,000 credit card balance and settling it for $1,500 is very appealing.
Unfortunately, credit card settlement services often put people in more difficult financial situations rather than improving their finances. What are the issues associated with credit card settlement?
1. A loss of credit
Those surviving paycheck-to-paycheck require the financial flexibility of credit cards. Otherwise, they may not be able to put gas in their vehicles or buy groceries every week. Credit card settlement efforts generally result in the closure of the settled lines of credit, leaving people struggling to cover their expenses.
2. A credit report blemish
Settling a credit card balance is not the same thing as paying the amount owed in full. Companies generally do report settlements to the credit bureaus. Each settled account serves as a negative mark on an individual’s credit history.
3. Another debt to pay
Credit card settlement generally involves the service provider offering a loan. The party settling their debt takes out a new loan with the settlement company. That loan may have a variety of hidden costs built into it, including increased interest rates and service fees.
Debt settlement is not a solution but merely a temporary means of staving off aggressive collection efforts in most cases. Filing for personal bankruptcy can be a more effective means of addressing overwhelming credit card debt. Those struggling to make their monthly payments may need help learning about bankruptcy before they take on more debt in the form of a settlement loan.
