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Sound Advice: December 11, 2024

Debt Relief Offers Are Time Bombs

Many of these "offers" can come with hidden costs, high fees or unfavorable terms that can make your financial situation worse in the long run.

Some common reasons to be cautious about these offers:

1.     High Fees: Some companies offering to reduce credit card debt may charge hefty upfront fees, or they may require you to pay monthly fees. In some cases, these fees can eat into any savings you might get from the debt reduction.

2.     Debt Settlement Scams: There are a number of debt settlement companies that claim they can reduce your debt by negotiating with your creditors, but they may ask you to stop paying your credit card bills entirely while they "negotiate." This can cause late fees, higher interest rates, and seriously damage to your credit score.

3.     Tax Implications: If a company settles your debt for less than what you owe, the amount of the debt forgiven may be considered taxable income by the IRS, meaning you could face a tax bill on the amount of debt that was wiped out.

4.     Impact on Credit Score: Some debt reduction or settlement programs can hurt your credit score, sometimes more than sticking to a regular repayment plan. A debt settlement can be reported as "settled for less than the full amount," which can be a red flag for future lenders.

5.     Reputable Alternatives: Before considering any offers, it’s often better to explore other, more reputable options like a balance transfer, debt consolidation loan or negotiating directly with creditors to lower your interest rate or arrange a payment plan.

It’s always a good idea to read the fine print, check for any reviews or complaints about the company offering the service, and consult with a financial adviser or credit counselor before committing to anything.

N. Russell Wayne

Weston, CT  06883

203-895-8877

 

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