Ok, lets say you have $30,000.00 worth of charge card debt. You’ve heard of debt settlement companies that say that they can lower not only your interest rates but they can reduce your outstanding balance on the credit cards. Wow, is this for real they will be able to reduce your balance, really? Well yes and no.

Debt settlement programs are a great thing for a select few types of people. Yes your balance can be paid off at a settled amount but the actual balance on the credit cards is never actually reduced. What really happens when you enroll in a debt settlement program is, you go very late and when the settlement company feels that the creditor is desperate enough they will offer a settlement. It is something you can do on your own with a savings account.

How this works: if you don’t pay your charge card bills, all the creditor can do is sue you and even if they win that doesn’t mean that you will pay them back. Because of this, charge card companies will accept a settlement for a debt that they feel will not be repaid to try to recoop at least a percentage of the losses. This DOES affect your credit score in a negative way and if there is a company that is telling you different they are lying.

Why debt settlement [spin]processes affect your credit in a negative way: Well, what happens is, the debt settlement institution will calculate all of your debt, lets say that you have $30,000.00 in charge card debt. They will use this number and multiply it by the normal settled amount for that state, for this example I am going to use 50%. They tell you that you will be able to pay off the balance with a total of $15,000.00 and they explain to you that you won’t be paying any interest in the process. Well, this is the case, you will not be PAYING interest but it will be accumulating on your account along with late fees and other charges. They then tell you that your monthly payment will be $497 for 36 months which is a lot less than you are used to paying and it makes you happy. However, hidden in that $497 per month there is a monthly fee of $81.00 which after the 36 months builds to a total of $2916.00. Once you agree to the terms, the settlement institution sets up payments directly to them and does not pay the creditors instead, they put this money into a savings account and when you accumulate enough funds they then offer the settlement payment to the lenders. This is something you can do on your own. Please however, do not do this if you have good credit because it will put a huge scar on your credit report!

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