If someone tries to convince you that you get out of debt faster and without pain, hold on to your wallet and headed for the door. There are legitimate ways to get out of debt, but all require hard choices and sacrifices. Here is a look at the options available to consumers who are struggling with unmanageable debt:
Settlement of debt. Debt-settlement firms negotiate with creditors to reduce the amount of debt you owe. You are directed to make monthly payments into a savings account. When you save a certain amount, the company will go to creditors and offer to pay a percentage of the debt. Debt-settlement companies often say could reduce the debt of 50% of their clients’ or more.
Pros: debt settlement is an alternative to bankruptcy for people who are struggling with huge debts from financial setbacks, such as serious illness or divorce, said Don Goldberg, a spokeswoman for Consumer Credit Rights Campaign, a coalition of Debt Settlement company. This allows them to reduce their debt without losing their cars and homes, he said.
Cons: Some debt settlement companies are large cost start-up costs that reduce the amount of money available to negotiate with creditors. If you stop paying your bills – debt settlement that some companies tell their customers to make – interest and penalties will increase the amount of debt. The creditor can take you to court, and you can garnish wages. Even if you win, your credit score will have a serious shot.
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