What are the risks of debt settlement?

Debt settlement, or debt negotiation, is a way to resolve credit card disputes by reducing the amount of debt owed. This can be done through direct negotiation with creditors or through an outside third party. While debt settlement often offers a way to get out of debt quickly and reduce the amount owed, it also has some risks to consider. First, debt settlement can have a negative impact on your credit score. When accounts are settled, it is reflected in your credit report as "settled” or “paid as agreed on a reduced balance.” This looks less favorable to potential lenders than a "paid in full” or “paid as agreed” status. Additionally, debt settlement can be costly. While debtors may end up paying less than they owe on their debt, debt settlement companies often charge hefty fees. You may also be responsible for taxes and penalties associated with forgiven debt. Finally, with debt settlement there’s no guarantee the creditor will agree to negotiate. Even if the creditor agrees to the negotiation, they may still decide to take legal action against you. Debt settlement may be a viable option for some, but it’s important to be aware of the risks. Be sure to look into the details of debt settlement and consider the potential risks before making any decisions.

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What are the risks of debt settlement?

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