Complaints about debt settlement companies are on the rise. The web site Credit.com says complaints have doubled from last year. American express won't even work with debt settlement companies.
How does it work? First the client is instructed to pay the debt settlement company on a monthly basis instead of paying the creditors (this has a negative inpact on your credit score). Many times these companies charge a large up front fee(10-20% of total debt due) that is taken from this payment. While the debt settlement company is being paid the creditors are not. The clients interest and late fees begin to accrue. Also, the client incurs taxes on the amount of debt forgiven in a settlement.
If you are against filing bankruptcy, only consider using a non-profit credit counseling organization.
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