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Debunking Common Debt Settlement Myths

Debt settlement is one of many ways to manage your debt. However, it’s crucial to avoid falling for common myths that could harm your financial situation and credit history. Here are some myths and the truths behind them:

Myth 1: You Can’t Do Anything Once Your Debt Goes to Collections

If a creditor has sold your debt to a collection agency, you might feel powerless. However, you still have options:

• Verify the debt: Confirm that the debt is yours. Debt collectors must provide information about the debt, and you can request a debt verification letter to ensure accuracy.
• Consider settling: Collection agencies often buy debts for a fraction of their original value, so you might be able to settle for less than what you owe. Propose a full payment or an affordable payment plan to the agency.
• Send a cease and desist letter: If the debt is time-barred or you feel harassed, you can send a cease and desist letter. Debt collectors are legally required to comply with these letters.

Myth 2: You Can’t Negotiate Your Debt Yourself

Some companies claim they are uniquely qualified to negotiate with your creditors, but you have the right to negotiate on your own. Doing so could save you thousands of dollars. While it requires time and effort, the outcome can be the same as hiring a debt settlement company. If a collection agency has filed a lawsuit against you, consult with an attorney.

Myth 3: You Have to Pay Upfront for Help

Federal law prohibits debt relief companies from charging upfront fees. If a company tries to charge you before settling a debt, it could be a scam. Report such incidents to the Federal Trade Commission and your state’s attorney general.

Myth 4: Bankruptcy Is a Faster Way Out

Bankruptcy might seem like a quick solution, but it can have long-lasting effects. Many debts, such as secured loans, student loans, alimony, child support, and taxes, are difficult to discharge. The process can take years, and a bankruptcy remains on your credit report for up to 10 years, limiting future credit access.

Myth 5: You Don’t Have Other Options

If you’ve missed several payments, you might think debt settlement and bankruptcy are your only choices. However, consulting with a credit counselor can provide you with additional options, often at no cost. A debt management plan (DMP) might be a viable solution, where a credit counseling agency negotiates lower interest rates and monthly payments on your unsecured debts. While there are some fees, a DMP typically takes three to five years to complete.

Check Your Credit to Better Understand Your Options

Debt settlement can negatively impact your credit score, but if you’re already behind on payments, your score may have already suffered. Check your credit score and report to evaluate your credit health. If you’re unsure how to proceed, a credit counselor can help you explore your options.

For any mortgage-related needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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