Does consolidating debt hurt your credit score
A legitimate company should never charge upfront fees. Finally, debt settlement might cost you at tax time, too, because Uncle Sam may get a cut.The amount of debt that is forgiven by a lender is often taxable.“You call and try to negotiate a balance, and it’s like, ‘Get in line.’” A card company’s attitude may be, “Yeah, you and everybody else,” says Ken Clark, author of “The Complete Idiot’s Guide to Getting Out of Debt.” Based on experience negotiating with creditors, debt settlement companies know what percentage of debt owed each creditor is likely to agree to, Gordon says.The pros also have more leverage with creditors due to their volume of business.However, for some consumers, debt settlement may be the best choice.
“Maybe they’re borrowing from one credit card to pay the balance on another,” Gordon says.
Some courts have ruled that these “non-collection” letters do not violate the Fair Debt Collection Practices Act, but the United States Court of Appeals for the 5th Circuit has ruled that some actions can violate the FDCPA, he says.