Few things are more stressful than struggling to make debt payments, and if you’ve found yourself in this situation, you’re probably looking for any way out you can find. Perhaps you’ve seen commercials advertising national debt relief companies and wondered if they might offer the way out of debt you’ve been looking for. However, thee companies have several serious downsides you should know about before you agree to work with one. Here’s what you need to know so that you can make an informed decision about your financial future.
Common Pitfalls and Risks
Some of the most common disadvantages of working with a national debt relief company to resolve unmanageable debts include:
- High fees and hidden costs: Many debt relief companies charge upfront fees or monthly subscriptions, even before they settle any debt. In some cases, the fees paid to companies can offset any savings they obtain for a client and may also make the client’s financial strain worse.
- Damage to credit score: Debt relief companies often advise clients to stop making payments to creditors, which can result in creditors reporting accounts as delinquent. That leads to significant drops in credit scores. Reported delinquencies can stay on credit reports for years, causing lasting complications for customers.
- Tax implications: When debt resolution companies secure forgiveness of balances, they may fail to advise their customers that some debt forgiveness is counted as taxable income. As a result, customers may end up with a higher tax bill in April than they anticipated. They may owe additional interest, fees, and penalties on the additional tax liability.
- No guarantee of debt resolution: National debt relief companies often advertise a stress-free method for resolving crushing debts. However, companies cannot guarantee that they can resolve a customer’s debts. Creditors do not have to negotiate with debt relief companies or accept settlements offered by a debt relief company. As a result, consumers can end up in a worse position after working with a debt relief company because of the accrual of interest and penalties on debt balances that could not be cleared.
- Scam and deceptive practices: Although some debt relief companies do provide legitimate services (even with potential drawbacks for consumers), other companies engage in deceptive practices with customers or operate as scams. Some debt relief companies have disappeared or cut off communications with customers after receiving payment of their fees. Other companies mislead customers about the services they can offer or the potential outcomes of their services.
Safer Alternatives for Managing Debt
People struggling with debt might pursue other alternatives to national debt relief companies. Other choices include:
- Nonprofit credit counseling: Various certified nonprofit organizations provide services, often for free or low cost, in which counselors help people develop budgets and payment plans to pay down debts gradually.
- Debt management plans: Nonprofit credit counseling services can also work with creditors to develop affordable repayment plans. They can work to get lowered interest rates and fees that make it feasible for individuals to afford monthly payments on debts.
- Hardship programs: Some creditors offer hardship programs that involve temporary forbearance of payments or restructuring of debts. Consumers can also negotiate debt settlements with creditors without spending money on a debt relief company.
- Bankruptcy: As a last option, individuals may file for Chapter 7 or 13 bankruptcy to obtain debt relief through the court.
An experienced debt relief attorney can review your situation and advise you on what options might be best for your goals.
Contact a Debt Relief Attorney Today
Although national debt relief companies’ advertising may make bold promises to help you resolve your debt issues, working with these companies may expose you to certain pitfalls. Contact Gina H. McDonald & Associates, LLC, today for a free, confidential consultation. You’ll talk with a knowledgeable lawyer who can explain the potential drawbacks of working with a national debt relief company and advise you about alternatives that may better suit your needs and circumstances. Don’t stay stuck. Call now.
