When bills pile up and monthly payments become hard to manage, using a debt settlement company might seem like the answer. These companies usually offer their services to help with debt problems. However, there could be risks with using a debt settlement company’s services. You might end up missing payments, hurting your credit score, paying high fees, or even possibly getting scammed.
What is a debt settlement company?
A debt settlement company is a business that offers debt assistance and options to consumers. These options may include negotiating with creditors to reduce the amount you owe. They could also offer to contact creditors on your behalf and ask them to accept a smaller payment to clear your debt.
Here is some additional information to know before using a debt settlement company:
1. Can Debt Settlement Negatively Impact Your Credit Score?
Debt settlement companies often advise consumers to stop making payments so they can negotiate with creditors and collect funds for a lump-sum offer to the creditor. However, missed payments can trigger late fees and be reported to credit bureaus after 30 days, which could impact a credit score. Plus, settled accounts typically show as a negative mark ‘Paid less than full amount’ on credit reports. This negative mark can appear on your report for up to seven years, making it harder to qualify for new credit.
2. Can Debt Settlement Companies Charge You High Fees?
Yes, debt settlement companies can charge high fees that can add to your financial burden. Using a debt settlement company may cost an additional 20 to 25 percent of your debt in various fees. For example, if you owe $10,000, you could pay up to $2,500 just in fees to the debt settlement company.
3. Could Working with a Debt Settlement Company Not Resolve your Debt?
Yes. Creditors can simply refuse to work with debt settlement companies, and in other cases, the debt settlement company won’t be able to settle all of your debts. The debt settlement industry admits that about 25 percent of customers don’t settle any accounts at all, meaning time and money is spent with no results. Even if some debts are settled, any of your remaining unpaid debt continues to accrue late fees and interest that can erase any potential savings.
4. What Are Common Scams Used by Debt Settlement Companies?
Some debt settlement companies may try to deceive consumers with substantial credit card debt. The companies promise to negotiate with creditors to lower your payments or reduce your debt. However, some of these companies are scammers that often charge a big fee upfront and then do little or nothing to actually help. These companies even use robocalls to contact people, even those on the Do-Not-Call List.
The FTC has taken legal action against many of these fake debt relief and credit repair companies, often teaming up with state agencies to stop them.
5. Can You End Up Owing More Money After Debt Settlement?
Debt settlement might leave you owing more than when you started because when you stop making payments during negotiation, late fees and interest can accumulate every month. In addition, debt settlement companies typically charge fees for services, which can add to your total amount owed.
You Have Other Options
Consider other alternatives:
Contact Your Lenders Directly
Start by calling your lenders to discuss your situation. Speaking with them personally offers you more control and can help avoid unnecessary costs and risks associated with third-party debt settlement companies. Many lenders offer hardship or financial assistance programs to customers who have trouble making payments. For example, if you have a loan with Mariner Finance, we can review your account and develop a plan based on your specific needs.*
Consider Non-Profit Credit Counseling
Often confused with debt settlement companies, non-profit credit counseling agencies also provide a range of helpful resources and services, including working with creditors. Some certified credit counselors could help you lower your monthly payments, reduce interest rates, and teach you how to manage debt and improve your credit. Reputable agencies typically charge low enrollment and service fees. In some cases, they may be willing to waive their fees.
Working directly with lenders or trusted credit counselors could help you avoid the risks of using debt settlement companies.
If you have a Mariner Finance loan, our customer support team can help you find solutions that work for your situation.* †† Don’t let money stress push you toward choices that could make things worse. Contact us at 844.338.2080 or visit a branch location for assistance.
*Online loans between $1,500 and $14,000, originated by WebBank, except online loans in CA, MD, NJ, and VA originated by Mariner Finance, LLC, or its affiliate, as applicable. Loans greater than $14,000 or less than $1,500 may be originated by Mariner through Mariner’s branch network. Any stated APR represents the cost of credit as an estimated yearly rate, and each applicant’s specific interest rates and fees are determined as permitted under federal or state law (as applicable) based upon loan amount, term, the applicant’s ability to meet specific credit criteria including, but not limited to, credit history at the time of application, income, debt payment obligations, and other factors such as availability of collateral, and state of residency for Mariner-originated loans. Not all applicants will qualify for the lowest rates or larger loan amounts, which may require a first lien on a motor vehicle not more than ten years old titled in the applicant’s name with valid insurance. Any loan by phone and/or online closing process requires a compatible mobile or computer device on which you can access your email and electronic documents. Not all loan types are eligible for loan by phone or online loan closing.
††When refinancing your existing debts, the total finance charges over the life of the new loan may be higher than for your current debts if you have a higher interest rate and/or a longer term. Loans may also include origination fees, which may reduce funds available to pay off other debts.
