Debt settlements, which can be financially risky, surged from 2007 to 2010, according to a recent report by the Consumer Financial Protection Bureau. Conversely, credit counseling, which is essential because it helps people get out of debt while maintaining positive relationships with their creditors, has seen a fall.
Be prepared for a decision-making crisis by learning about your debt relief possibilities.
Here's why debt settlement is less beneficial than you would think.
You've probably heard radio advertising or gotten a robocall offering you a way to reduce your debt by half or more.
When you work with a debt settlement business, The business will then get in touch with your creditors, usually after many months, and attempt to negotiate a settlement in which the creditor forgives some or all of the debt. Things can go wrong during the lag time between when you stop making payments to creditors and when the debt is cleared (which is not guaranteed).
Miami CFP Glenn Downing warns, "There's no free lunch." You have to realize that there are substantial costs and benefits associated with debt settlement. This is the absolute last option.
Among the dangers of settling debts are the following:
Neglecting to pay your debts might lead to legal action on the part of the original creditor or a debt collector who has purchased the debt from the original creditor. You are in danger of legal action until the debt is settled, paid in full, or discharged in bankruptcy. In the red on the tax front: Debt forgiveness is considered income by the IRS.
Saving less than what was advertised
The amount you save may be less than you expected because debt settlement companies typically charge a fee of 30 percent or more of the total amount owed. After paying the settlement company's price, even if you settle for half of what you owe, you won't come out as far ahead as you may imagine. If you stop making payments, interest and late fees will be applied to your outstanding total, increasing your debt.
Credit damage 
The worst things you can do to your credit are missing payments and default on your bills. Having these negative notes on your credit reports for up to seven years might make you appear too high of a risk to potential lenders, leading to either being denied for credit or being charged a higher interest rate.
A more innovative option for your future bank account
If you have more than one credit card, consolidation could help you save money and keep good standing with your creditors.
However, a 2018 Harris Poll poll commissioned by Money Management International, a nonprofit credit counseling service, found that many customers are unaware of these benefits. From a sample size of 2,012, it was observed that 62% of people are unaware that credit counseling can consolidate numerous credit card balances into a single monthly payment. And 73 percent didn't know that credit counseling can help them get better interest rates on their credit card debt.
A Binding Contract Is Terminable
Utilizing the services of a credit counseling firm to handle your debt can have some negative consequences. For most agreements like this, you'll need a stable source of income, and if you ever fall behind on payments, the whole thing could fall apart, leaving you to fend for yourself financially.
Credit counseling, however, comes out on top in the long run. Most of the time, consumers who use this method of reducing debt can maintain positive relationships with their creditors. Closing credit accounts, which some agencies require, is the only thing that could hurt their credit score.
The National Foundation for Credit Counseling and the Financial Counseling Association of America offer certifications to nonprofit credit counseling agencies that prove their legitimacy.
Learn to recognize when a third choice is the best
Evaluate the following factors before deciding between debt settlement and credit counseling:
Payment of your debts is a constant struggle. If you don't count mortgage or rent, your monthly debt payments are more than 40% of your gross income. If you're having trouble sleeping or eating properly, it may be because your debt load is too heavy.
Then filing for bankruptcy can be an option for you. Despite its negative reputation, this method of paying off debts can often be completed in less time than either credit counseling or debt settlement. Furthermore, credit scores can rise again quickly in the months following a bankruptcy filing.
