Debt is something that can sneak up on almost anyone who is using credit cards or personal loans. Before you know it, the interest rate has doubled the cost of what you originally paid and now you owe thousands. Paying all this off in a short time when you have other bills can feel impossible. Many people turn to debt settlement companies for help. However, if you are falling into bankruptcy, consider asking a Kingsport bankruptcy attorney for help.
WHAT ARE DEBT SETTLEMENT COMPANIES?
There are several types of debt settlements you can use to escape your debt. You can use debt settlement on credit cards, medical bills, personal loans, cell phone bills, private student loans, utility bills, mortgages, and auto repossession. However, not all of these work the same way.
For example, federal student loans only allow debt settlement under specific conditions. You must have defaulted on your student loans, and you have three options for your settlement:
- Pay 90% of the principal balance
- Pay principal balance and half the interest
- Pay remaining loan and interest but you do not have to pay the collection agency fees
You might be wondering what debt settlement companies are and how they can help you escape debt. Debt settlement companies are usually for-profit and will negotiate with your creditor for you. Their goal is to help you pay a lump sum that is less money than the total debt you owe.
For this to work, a debt settlement company will have you put a certain amount of your money into savings each month. Once you have enough money put into savings, this money will be used to pay that lump sum. After this, your debt is supposed to be taken care of.
RISKS OF DEBT SETTLEMENT
Not all debt settlement companies can be trusted. There are also a variety of debt settlement risks with trustworthy debt settlement companies. For one, your creditor is not required to work with a debt settlement company. This means if your creditor does not want to use a debt settlement company, your efforts to work with that company will be for nothing.
Some debt settlement companies come with fees you may not want to or be able to pay. Fees might be charged to open a third-party bank account and for the company’s services. Depending on what deal you are agreeing to with the debt settlement company, you may have to worry about:
- Your credit score decreasing
- Late fees for not paying your debt on time
- Penalty interest rates
These negative effects happen because part of the deal with debt settlement is to stop paying your debt for a certain amount of time. Instead of paying your creditor monthly, you are paying into savings for the debt settlement. Not all creditors like this.
BANKRUPTCY ATTORNEY IN KINGSPORT, TN
Going through bankruptcy alone for the first time can be terrifying. Call us at Tom Bible Law by dialing (423) 690-7712 to explore your financial options today. Our legal team of Tennessee bankruptcy lawyers can help you navigate through the tricky aspects of bankruptcy. You can find us throughout the Tennessee cities of Chattanooga, Kingsport, and Tullahoma.