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Be cautious when agreeing to settle credit card debt

Individuals who are drowning in credit card debt can get desperate. Usually by the time it gets this bad, you have long ago ceased payment on the principal and are simply struggling to remain current on the interest, meaning that you never seem to make a dent in your debt mountain.

Some companies capitalize on consumers' desperation and promises to eliminate debt for a fraction of what is owed. Should you take them up on their offers?

The Federal Trade Commission urges consumers to use caution with these companies, as many times you can successfully negotiate your own debt settlement without paying these companies a cent.

Debt settlement companies have no more power than consumers when negotiating debt settlements. Either way you will still be allocating funds to pay down your debt. Consider that if you are able to afford to set aside monthly payments in an escrow account set up by the company, you will likely be able to afford a monthly payment on your own.

If you do go with one of these companies, the period of repayment is typically about three years. If you fall short halfway through the 36-month period, you could violate the terms of the agreement and lose all that you have paid and still owe the amount.

Creditors may refuse to settle for less than the full amount, even while the for-profit companies are telling you to forgo paying your creditors. Meanwhile your fees and interests continue to mount.

During this debt settlement process, consumers can still be harassed with calls and letters from collection agencies. The creditors can also sue you, get a judgment and garnish your wages. Sometimes they can even put liens on your family home or other property.

If you are struggling financially to pay off your credit card debts, you may want to consult with a bankruptcy attorney to learn about other options that can forestall collection attempts.

Source: Federal Trade Commission, "Settling Credit Card Debt," accessed July 22, 2016

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