Thomas F. Miles, Attorney and Counselor at Law
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Is debt settlement the answer for unmanageable debt?

When facing extreme levels of debt, the pressure to take action can be overwhelming. California consumers know that struggling to make ends meet under a mountain of unmanageable debt is no way to live. Choosing the best path forward, however, can be a challenge. For some, debt settlement may seem like a good fit. Consumers must be sure to understand the full scope of debt settlement offers, as some programs can lead to even more dire financial circumstances.

Debt settlement works by a transfer of financial responsibility from the consumer to one or more agents working for the settlement company. The consumer authorizes the agent to negotiate directly with creditors for improved terms, such as reduced interest rates and waiver of fees and fines. The agent then restructures the consumer’s current debt landscape.

The consumer then begins making deposits into an account held within the settlement company. Those funds are accessed by the agent, who uses them to repay creditors over time. This arrangement can be a viable way to repay outstanding debt, but success relies on the continuing ability of the consumer to make timely payments.

In addition, there are risks associated with debt settlement. For example, it is common for the agent to suggest that a consumer stop making payments on certain accounts until such time as a new payment arrangement can be negotiated. Problems can arise, however, when companies refuse to work with the settlement company. In such cases, the consumer finds that they are not only in default on their credit obligation, but that they must now deal directly with that creditor in addition to making the monthly settlement payment. For many California residents facing unmanageable debt, settlement does not offer the best or most expedient path to debt relief.

Source: The New York Times, "Report Says Debt Settlement Companies May Leave Clients Worse Off", Ann Carrns, July 8, 2014

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Thomas F. Miles, Attorney and Counselor at Law
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