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Is debt settlement the answer to debt relief problems?

In many cases, Florida consumers who are struggling with high levels of debt find themselves in serious and immediate need of debt relief. In some cases, individuals fail to recognize just how deeply they have become mired in debt until something forces them to address the issue. For others, a slow but steady dependence on credit cards or other forms of debt lead to a far more serious scenario than they thought possible. Regardless of how one came to be in need of debt relief, many will consider debt settlement services as they search for a solution.

A recent report from the non-profit research group known as the Center for Responsible Lending asserts that debt settlement might bring more financial hardship than relief. The Center looked into the debt settlement industry, and found that the services offered by many of these companies is not as effective as many consumers might believe. Many who attempt debt settlement eventually file for personal bankruptcy, the very outcome that they sought to avoid by trying to settle their debts.

Debt settlement agencies ask consumers to turn over control of their financial crisis to a third party, who is authorized to negotiate with creditors on the consumer’s behalf. The client agrees to open an account into which funds are deposited, and the settlement agent then uses those funds to pay back certain debts. This arrangement removes the burden of trying to work out more favorable terms, and gives the consumer the chance to focus on making the agreed-upon deposits, rather than trying to decide which accounts should be paid first.

However, in order for debt settlement to be successful, the consumer must be in a financial position to repay a large percentage of his or her debt within a few years. If the accounts are not paid as agreed, clients can find themselves essentially back where they started. They may also have spent a a lot of money on fees required by the settlement company.

For those in Florida who are considering debt settlement, it is important to take a close look at one's debt and income. When repayment is simply not feasible, a more aggressive form of debt relief is needed. Being under severe financial strain is a heavy burden, and consumers should know the pros and cons of all available options before choosing a path forward.

Source: The New York Times, "Report Says Debt Settlement Companies May Leave Clients Worse Off", Ann Carrns, July 8, 2014

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