5 Misconceptions about Settling Credit Card Debt

Settling credit card debt is not as easy as some people may lead you to believe. Debt settlement companies will often make the process seem simple and cost effective. In reality, any debt settlement process is complicated and costly. Consider these fallacies if you are thinking about settling your credit card debt.

#1 It Is Available to Anyone

Not all individuals will benefit from credit card debt settlement. It is truly viable only for a person who cannot reasonably afford to continue paying debts yet has the income to settle the debts. This is a very narrow window. If your income is too high, a creditor will refuse to settle because you can pay back the debt regularly. If your income is too low, no settlement company will take your case because they fear you will default in the end.

#2 You Can Go It Alone

If you attempt to settle a debt without using a company, you will face large hurdles. First, you will need to personally come up with the cash to pay the settlement. Second, as an individual, you have no relationship with the primary lender and are unable to leverage a settlement. A settlement company that does a lot of business with a lender can help reduce debts because of this existing relationship. As an individual, you lack this pull.

#3 Your Credit Score Will Stay Safe

Anytime you modify your credit card balance, your credit score will be affected. Credit inquiries to your score, new loans you take, and closing multiple debts at once will all negatively affect your credit score. Further, settling debt can be a huge negative consequence if the credit card company decides it is not happy with the resolution of your debt. It may mark your loan as closed, but it can mention the loan was closed in a manner unsatisfactory to the lender. This warns future lenders that you settled the debt rather than paying it in full.

#4 Balance Transfers Save Money

You may be tempted to transfer the balance on one credit card to another. This trap is easy to fall into, particularly when the new credit card is offering the opportunity to make no payments for some period. You may save yourself from immediate default with this option, but the result is typically an actual loss of money in the long run. Your balance transfer can result in very high fees, a significant drop in your credit score, and the accumulation of more debt in the long run. 

#5 Creditors Will Cancel Principal Debt

Even in a successful credit card debt settlement, do not expect to suddenly owe a fraction of your original debt. While some credit card companies will forgive finance fees and interest, very few will forgive a principal debt. The creditor paid this sum out to the individual you paid with your credit card; thus, canceling this debt would result in an actual loss to the creditor. Most credit card companies will offer to settle a portion of interest and fees only. You will still be held accountable for principal debt.

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