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Debt-settlement programs can be risky business

Life has its ups and downs. When the downs arrive, some Tennesseans rely on credit cards to make it through. But doing so comes with a cost -- a big one -- for those who have a balance on the card at the end of the month. If the cost is too large, the stress of a down period can merge with the stress of a financial shortfall.

For those in the clutches of heavy credit card debt, any glimmer of hope can be wonderful. But not every hope is as golden as it may appear at first glance. One example is debt-settlement programs. These programs are normally offered by for-profit companies who promise to negotiate with the credit card companies on behalf of the debtor. The idea is that they will negotiate a reduced payment to settle the debt once and for all.

The theory is fine, but it carries risks. For example, one requirement of debt-settlement programs is often that the debtor must deposit money in a special account for up to three years. If they cannot make enough of these payments, they may get dropped from the program.

Another issue is when the negotiations do not work out. For instance, if the debtor starts putting money in the special account, stops paying the credit card company and then no settlement materializes, then the debtor has put themselves in a much worse position, one in which they have significant fees, penalties and interest on top of the original debt.

A third risk flows from the common request of debt-settlement companies that a debtor stop paying the credit-card company and instead set it aside in a special account: a ruined credit report.

To sidestep these negative consequences, Tennesseans who find themselves under the weight of significant credit-card debt may benefit from speaking with an experienced bankruptcy attorney.

Source: Federal Trade Commission, "Settling Credit Card Debt," Accessed Jan. 31, 2016

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Mark T. Young & Associates
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Hixson, TN 37343

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