Relief Risks
Risks of Debt Relief Services
As a result of the increasing number of Americans currently struggling with debt, many individuals and companies have seized the opportunity to take advantage of those in need. Fraudulent "credit counselors" and debt-relief services often make false promises or charge outrageous fees for their services. Therefore, it is important you do your homework and be conscious of what your credit counselor or counseling company is telling you.
Debt Settlement Program Risks
Even though debt settlement programs might seem beneficial, there are risks associated with these types of programs. Despite your credit counselor negotiating for a low settlement that is less than your accrued debt, there are some things you might want to consider:
Program Requirements
Many DSP's require that you deposit money into a savings account for 36 months before your debts are settled. If you are unable to make these payments, you might have to leave the program and be in the same or worse position. Take note of your budget to determine whether or not this is an option you can actually afford.
Lack of settlement
Depending on the severity of your delinquency and financial history, your counselor and creditor might not be able to come to an agreement. In addition, debt settlement companies tend to prioritize settling your smaller debts first. This may leave your higher balances to accrue more interest and fees.
Credit Report Impact
DSP's advise their clients to stop sending payments to their creditors while they attempt to work out a settlement. This will subject your account to interest, late payment fees, and other adverse effects that will go on your credit report.
Fees
Some settlement companies require hefty payments before they attempt to settle your debt. Take note of all the program's requirements before putting your name to paper.
What To Watch For
As stated earlier, some individuals are out there simply looking to take advantage of those desperately in need of assistance. If something sounds too good to be true, then you should definitely take a second look at what they're offering. Here are some things you might want to look out for:
Advanced Loans
Some creditors ask you to pay a fee in exchange for a guaranteed loan. The fee can range upwards of $100 in some cases. Even though the prospect of having a loan to settle all your debts in exchange for a modest fee might seem like a good idea, there is no guarantee you will be able to get the loan. Most fees are non-refundable, so if you are unable to secure the loan you will be out that money.
Interest Rates
The advanced payday loans for quick cash now may seem like a good idea at the time. But if you read the fine print, you can often times see interest rates of 300% or more. That means a $1000 loan can end up costing you 3 times as much!
If you receive an offer for a payday loan, please report it to the New York State Banking Department by calling 1-877-BANK-NYS (2265-697)
Credit Repair
The only thing that can restore your credit is time. Some companies offer to wipe your slate clean for a fee. These companies rarely deliver on their promises. Only time and solid attempts to repay your debt can repair your credit report.
Overpromises
Be wary of any company that says they can stop all debt collection calls and lawsuits, guarantees your unsecured debt can go away, touts a new ‘government program’ to bail out your personal debt or that charges fees before settling any debts.