A lot of people believe that debt negotiation or debt settlement firms and credit counseling agencies are one and the same, but they are actually quite different. A reputable credit counseling agency will try its best to help you overcome your consumer debt problems, but the sole purpose of a debt settlement firm is to make money at your expense. There are several disadvantages of such firms that you should be aware before ever considering using that type of service to help solve your credit problems.
The services that debt settlement firms provide differ greatly from those of any reputable credit counseling agency. They will not try to help you create a budget or a debt management plan as you should try to do if working directly with your creditors on your own is not an option. Their sole focus will be on negotiating a settlement of your debt with your creditors which actually has several disadvantages.
Debt settlement firms falsely claim that they possess the ability to settle all of your unsecured debts for far less than the cumulative amount that is owed on them. However, there are two things to remember. You can and should try to do this by yourself before turning to any outside agency for help. Chances are very good that any unsecured debt that the creditor chooses to forgive and forget about can and will be taxed as income by the Internal Revenue Service. However, a CPA may be able to assist you in that area if they are able to prove that you were insolvent at the time the debt was forgiven by the creditor.
Another disadvantage of working with a debt settlement firm is that it could potentially do permanent damage to your credit history and FICO score. While they may promise that all of the negative information will be erased from your record, this is simply not true. Only the original creditors have this power, and they are not willing to do this in a debt settlement situation.
Working with a reputable consumer credit counseling agency will help both because loan amounts are pai d back on a regular basis which has prompted the Fair Isaac Corporation to stop figuring in counseling information into the figuring of the FICO scores. Debts are erased in full once a debt management plan is completed, and this information is then duly noted in your credit report.
Some debt settlement firms may tell you to stop paying your creditors any unsecured debt that is owed, and pay it directly to their firm instead. Unfortunately, chances are quite good that they could very well be all talk and no action so do not agree to do this under any circumstances. Your debts will continue to go unpaid, your credit rating will be further damaged, and the total that is owed to your creditors will steadily increase because of accumulating late fees and interest.
These are only some of the dangers of doing business with a debt negotiation or debt settlement firm so only do so with the most extreme of caution. A reputable consumer credit counseling agency is a much bet ter choice for anyone who feels that the services of an outside professional are needed so please take everything into consideration before entering into any type of financial agreement.
Pamella Neely writes about how to donate a car and find Jewish car donation charities.
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