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Though some may consider debt consolidation, there are things consumers should think about
12/04/2009
In the face of bills piling up, many consumers may consider turning to one of the many debt settlement companies that promise to reduce the amount they owe.
However, consumers who are thinking of doing this should realize there may be consequences, including damage to their credit score. A recent posting on the Atlanta Journal-Constitution's Bargain Hunter blog noted that debt settlement plans can often come with additional fees or tax liabilities.
For example, the blog noted that some companies may ask for up-front fees in order to settle debts. Furthermore, such plans encourage people to stop paying what they owe, which could hurt a consumer's credit score. There may also tax liabilities involved in debt settlement.
"Settlement companies rarely reveal initially that the amount of debt wiped out becomes taxable income," the blog noted.
Given these potential problems, consumers should make sure they have looked at the other options available. For example, they may consider going to a credit counseling organization, which can work with them to set up a plan to pay off their debts. Often, credit counselors can negotiate with lenders in order to reduce interest rates.
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