Advocating For Consumers In Bankruptcy Filings For More Than 25 Years

3 reasons debt settlement isn’t always the best option

On Behalf of | Mar 27, 2023 | Bankruptcy

When someone has high levels of credit card debt, they have to worry about their budget every month. It may be a struggle just to put together the money necessary to make mandatory minimum payments on each of their accounts.

Oftentimes, those who start falling behind on their credit cards end up over the limit and then paying fees on top of interest every month, which only worsens their situation. The companies that offer credit card debt settlement services are well aware of how stressed and frustrated the average person is when they are struggling with overwhelming credit card debt and they have no available revolving credit for budget flexibility.

These companies advertise settlement services that let people wash their hands of their credit card debts. People who turn to these services often only realize after the fact that debt settlement isn’t nearly as beneficial as they had hoped. What are some of the drawbacks of using a credit card debt settlement service?

1. It causes numerous credit blemishes

When credit card settlement is successful, a professional or company will negotiate with a lender so that the credit card company will accept a small portion of the total balance due. The borrower may save some money on their debts, but the credit card company will likely report the account as settled, not paid in full. Each account that they settle using this method will add another blemish to their credit report.

2. It closes lines of credit

When someone asks a credit card company to settle what they owe, the company will almost always refuse to allow future transactions on the same line of credit. An individual will therefore have no revolving credit available and will also see their credit score take a hit because of all of those accounts closing quickly.

3. It generates new debt

With the exception of those who have thousands of dollars set aside to pay their credit card debts, which won’t be many people seeking settlement services, those using a professional service to reduce their credit card balances will typically have to get a loan from the company providing the service to make lump sum payments to their credit card companies. The terms for the loan may not be particularly beneficial, and it will likely be a one-time loan of credit that they can frequently access.

For many people, credit card debt settlement only temporarily helps with their budget and does not resolve their actual financial issues. Filing for personal bankruptcy is often a better solution for those who are facing challenging levels of credit card debt.


Our Blog