Understanding Debt Settlement: Myths vs. Reality

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Debunking Common Debt Settlement Myths

Debt settlement is one of many ways to manage your debt. However, it’s crucial to avoid common myths that could harm your financial situation and credit history. At O1ne Mortgage, we are here to help you navigate these challenges. Call us at 213-732-3074 for any mortgage service needs.

Myth: You Can’t Do Anything Once Your Debt Goes to Collections

If a creditor has sold your debt to a collection agency, you might feel powerless. However, you have options:

• Verify the debt: Confirm that the debt is yours. Debt collectors must provide information about the debt. You can send a debt verification letter to force the agency to verify the details.
• Consider settling: Collection agencies buy debts for a fraction of their original value, so you might settle for less than what you owe. Propose an affordable payment plan to the agency.
• Send a cease and desist letter: If the debt is time-barred or you believe you’re being harassed, send a cease and desist letter. Debt collectors must obey these letters by law.

Myth: You Can’t Negotiate Your Debt Yourself

Some debt settlement companies claim they are uniquely qualified to negotiate with your creditors, but you can do it yourself. This could save you thousands of dollars. While it takes time and effort to gather information and negotiate, there’s no guarantee a collection agency will work with you, even if you hire a debt settlement company. If a collection agency has filed a lawsuit against you, consult an attorney.

Myth: You Have to Pay Upfront for Help

Federal law prohibits debt relief companies from charging upfront fees. If a debt settlement company tries to charge you before settling a debt, it could be a scam. Report such incidents to the Federal Trade Commission and your state’s attorney general.

Myth: Bankruptcy Is a Faster Way Out

Bankruptcy might seem like a quick solution, but it can limit your options more than you think. Many debts, such as secured debt, student loans, alimony, child support, and taxes, are difficult or impossible to discharge in bankruptcy. The process can take several years, and a bankruptcy remains on your credit reports for up to 10 years, limiting your future access to credit.

Myth: You Don’t Have Other Options

If you’ve missed several payments, you might think debt settlement and bankruptcy are your only choices. Consult a credit counselor to evaluate your situation and provide advice on different options, often at no cost. You might also consider a debt management plan (DMP), where a credit counseling agency negotiates lower interest rates and monthly payments on your unsecured debts. A DMP typically takes three to five years to complete and involves some fees.

Check Your Credit to Better Understand Your Options

Debt settlement can negatively impact your credit score, but if you’re already behind on payments, your score may have already suffered. Check your credit score and report to evaluate your credit health, then research your options. If you’re unsure how to proceed, find a credit counselor who can help you.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We are here to assist you in navigating your financial challenges.

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