Debt settlement companies are for-profit companies that claim that they can eliminate consumers’ debts by negotiating settlements with creditors that are a mere fraction of the consumer’s outstanding debt. Many of these companies accomplish little for consumers and charge hefty fees.
Many debt settlement companies make promises that they simply cannot keep and leave consumers in worse financial state then when they began. These companies advise consumers to stop paying debts and, instead, to place money into savings account so that enough money will accumulate to allow a settlement offer to be made to any creditors.
However, most consumers who sign-up with the debt settlement companies find the companies’ promises are empty. Creditors are under no obligation to settle for less money and often refuse to do so.
Consumers who follow the debt settlement companies’ advice to ignore collection efforts or refer those efforts to the debt settlement company usually continue to find themselves subject to creditors’ collection efforts, including lawsuits.
And the debt settlement companies’ saving plans are often extremely unrealistic, so the promised negotiated settlements do not occur, but the debt settlement companies still take their fees.
In addition, consumers’ credit histories are further damaged when the consumers stop paying debts.