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What is a debt settlement company?

When experiencing crushing debt in Illinois, it is important to know your relief options. That way, you can make an informed decision about where to go for help. You may have questions about the legitimacy and effectiveness of debt settlement companies. 

According to the Consumer Financial Protection Bureau, there are legitimate debt settlement companies that must comply with rules set down by the Federal Trade Commission. Debt settlement companies are usually for-profit enterprises, which means that the law allows them to charge you a fee for their services. However, the company cannot collect any fee from you until negotiation has taken place with creditors and all parties have reached an agreement. 

Asking for a fee upfront is one of the red flags that you may be dealing with a phony company posing as a legitimate debt relief provider. Other warning signs include offers of guaranteed savings in specific amounts and a lack of access to the funds that you pay into the account that the company creates for you. 

Even when dealing with a legitimate debt settlement company, however, there are downsides. Before negotiating a settlement for you, the company usually asks you to stop making payments to your creditors. In the most extreme scenario, creditors may become impatient and bring a lawsuit against you. Even if this does not happen, failing to make payments can have a negative impact on your credit score. 

Creditors often have policies in place that limit the amount of debt they can forgive. This means that the debt settlement company cannot usually obtain any better terms for you than you would get through your own negotiations with the creditor. Some creditors simply will not negotiate with debt settlement companies at all. Therefore, there may be more effective debt relief options available to you. 

The information in this article is not intended as legal advice but provided for educational purposes only.