Is using a debt settlement company a good idea?

Using a debt settlement company is not a good idea in most cases because it can severely damage your credit score. Other reasons why using a debt settlement company is not a good idea include the expensive fees associated with settling debt and the length of the process.

Why Using a Debt Settlement Company Isn’t a Good Idea

• The service can hurt your credit score. If you work with a debt settlement company, you will make payments to the company “helping you,” but they will often withhold the money from your creditors until you default. This makes it easier to settle the debt, but it can lower your credit score by as much as 100 points initially.
• Settling debt stays on your credit report for 7 years. The start of that period begins on the date the account became delinquent.
• Debt settlement companies have expensive fees. These companies may charge a fee of 15% - 25%, which could be based on the original amount you owed or the amount you saved by settling.
• Settling your debt may take 2 to 4 years to complete. Since your creditors do not have any obligation to settle your debt, there is a possibility that no settlement will even occur during this time frame.

Alternatives to Working With a Debt Settlement Company

There are a few ways to alleviate debt other than working with a debt settlement company. Some options include debt consolidation, debt management or going to credit counseling.

If you’re interested in debt consolidation, check out WalletHub’s picks for the best debt consolidation loans and the best balance transfer credit cards. You can also estimate your potential rates with our free pre-qualification tool if you decide to get a debt consolidation loan.

The bottom line is that you should thoroughly compare the various alternatives before opting for debt settlement. You should also look into DIY debt settlement before you decide to hire a debt settlement company.