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If you’re in debt, you’re not alone. Unforeseen emergencies, unemployment and excessive expenses can easily push anyone’s budget over the tipping point, leaving you feeling overwhelmed and hopeless.  But there are ways to get back on track and you don’t have to go it alone.

The average American now has about $38,000 in personal debt, excluding home mortgages.*

We’ve created a list of some of the best options to get out of debt and get your life moving forward.  But first, we’re starting with one option you definitely want to avoid.

Everything you need to know about Debt Settlement companies —and why to avoid them.

When debt becomes overwhelming, some consumers look to debt settlement companies who promise to get creditors off their back and lower debt amounts. But is it too good to be true?  With debt settlement, the risks often outweigh the benefits. Here are a few things you should know about how debt settlement companies work that they won’t tell you, the risks associated with them, and other options you have that offer meaningful assistance.



What is Debt Settlement?

Debt settlement is a long-term process that allows you to pay a lump sum
that’s typically less than the amount you owe to resolve or settle your debt.
A debt settlement company claims they will reduce your debt by negotiating
a settlement with your creditor on your behalf.

How Debt Settlement Works

  • You pay a lump sum to settle your debt—typically less than the amount owed.
  • The debt settlement company agrees to negotiate the settlement on your behalf.
  • You stop making monthly payments to your creditors, which puts your accounts in collections.
  • You typically endure 3-6 months of collection calls before your creditor will negotiate a settlement.
  • If the debt settlement company and your creditors reach an agreement (this may take up to 4 years), the debt settlement company will charge you hefty fees or large percentage of your savings.

6 Things You Need to Know About Debt Settlement 

  1. You may pay a significant amount in fees (even as high as your original loan).
  2. Stopping payments on your accounts will likely negatively affect your credit score—resulting in a higher interest rate on any future loans or credit cards.
  3. It does not guarantee that your creditors will negotiate with the settlement.
  4. It does not guarantee that your entire debt will be settled.
  5. Any amount “saved” in a settlement is taxable income and reportable to the IRS.
  6. It could leave you with more debt after fees and taxes.
Click here to get debt smart.


4 Smart Alternatives to Debt Settlement

1. Seek debt counseling.

You have a choice. Understanding your alternatives to using a debt
settlement company could save you hundreds or thousands of dollars
and give you the peace of mind you’ve been looking for.

3. Transfer balances.

Carrying a large balance on a high-interest rate credit card? Consider a balance transfer. A balance transfer allows you to move debt from one credit card to another with a lower interest rate.

4. Talk to your creditors.

It never hurts to ask. Offer your creditors an amount you can pay immediately. They may be willing to work directly with you to negotiate a settlement.

2. Consider a debt consolidation loan.

Turn to a trusted financial advisor to discuss a debt consolidation loan.
Debt consolidation combines two or more debt accounts. This can help
ease your financial burden with a single loan—lowering monthly
payments at a much lower interest rate and without negatively
impacting your credit score.

We’re here for you. Call us.

5Point offers debt counseling and debt consolidation loans to members and non-members. As a financial and lending expert, 5Point wants you to know that we have a solution—no matter how deep your debt may feel.  Come talk to us or talk to your trusted financial institution and keep your life moving in the right direction.

*Northwestern Mutual 2018 Planning and Progress Study