Debt settlement companies work with clients to renegotiate your existing debt, allowing you to pay a lump sum payment instead of fully paying off your debt.
In most cases, you make new monthly payments directly to your debt settlement company, which uses the funds to pay off your original debt. While this may sound appealing at first, there are some risks associated with debt settlement companies.
The first risk is you must pay off the entirety of your new payment plan before your debt is forgiven. Most companies create a repayment plan that lasts for two to three years.
If you are unable to make payments on this new plan, your original debt is not forgiven, so you are right back where you started.
The other issue is your lenders are not required to resettle your payments. You have a much better chance of negotiating a new deal with a debt settlement agency representing you, but the new rates may only be minimally better than your previous plan.
Debt settlement also becomes much more complicated if you owe multiple debts. Typically, the settlement company works on your smallest debts first, since these are the easiest plans to renegotiate. This means your larger debts are still accruing interest.
When you meet with a debt settlement agency, make sure you go over all their services before agreeing to hire them.
A legitimate agency must provide a detailed list of their prices, how long it takes to pay off your debt and what percentage of your deposited money is used to pay off your debt.