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  "I'd rather go to bed without supper than rise in debt." Ben Franklin
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TASC

Franklin Debt Relief, LLC is a member of (TASC) The Association of Settlement Companies. This trade association has developed a standardized industry disclosure for consumers.
 


 

Debt Settlement Help
Call Today: (877) 274-1260
  
Learn about
debt negotiation
  • Reduce debt by up to 40%
  • Be debt free in as little as 12-30 months
  • Lower your monthly payment
  • Make one simple monthly payment
  • Don’t risk your home or other personal property if you miss a payment
  • Don’t pay service fees unless our program saves you money
  • Reduce your stress and get a “New Deal”

Pitfalls of Debt Settlement

Debt settlement is an innovative way to reduce debt and avoid bankruptcy. Of all the debt relief and debt reduction options available, it is the fastest and most cost-effective way to get out of debt without the long-term credit implications of bankruptcy. Like each debt relief option available to consumers, however, it does have disadvantages that should be disclosed prior to signing up for a settlement program. Although all of the downsides of a debt settlement program should be noted and carefully analyzed against the backdrop of your financial situation, many of the common criticisms of debt settlement fail to address the fact that many of these disadvantages are unimportant for truly overextended consumers. The purpose of this series is to shed light on potential pitfalls of debt settlement and help consumers decipher whether these disadvantages actually relate to their situation.

Debt Settlement Damages Your Credit

In order for settlements to be reached, debt negotiation clients voluntarily fall behind on their payments. The reason for this is simple: if a creditor is getting paid each month according to the terms they stipulate, they have no incentive to accept a lump sum in full satisfaction of an outstanding debt. Moreover, since funds are rarely available upon enrollment into a settlement program (after all, most consumers with 40-60 percent of an outstanding balance use that money to help pay down their debt, not settle it), consumers need time to save money in order to pay off their creditors. As the account falls behind and the consumer saves money, creditors report the debt as past due to the credit reporting agencies, which obviously damages your credit.

For many consumers considering debt settlement, however, either keeping up the minimum payments is unrealistic anyway and or doing so in favor of fulfilling basic needs is illogical. By entering into a settlement program, these consumers can do damage control by avoiding bankruptcy. Also, despite popular misconceptions to the contrary, your credit history only makes up a portion of your credit score, albeit an extremely important portion. In fact, according to MyFico.Com, the credit history component only makes up approximately 35% of your credit score. Given the importance of your amounts owed (30%), in theory the long-term damage to your credit score should be far from catastrophic.

Finally, for consumers buried by credit card debt with no realistic expectation of being able to pay down, the credit sacrifice is oftentimes worth it, particularly considering the interest rates currently being charged. In other words, what sense does it make to pay $40,000 of credit card debt at 19% interest just for the sake of preserving your credit history, which as we mentioned, makes up a large but not overwhelming portion of your credit score anyway. After all, the purpose of good credit is to save money on interest or loans that otherwise would not be available to you. A consumer who is just barely able to afford the minimum payment on $40,000 of credit card debt can pay up to $80,000 in finance charges alone. Follow this link to discover some other potential disadvantages of debt settlement.

 
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