Your credit will take a hitDebt settlement requires you to stop paying your creditors, which means your accounts become delinquent. Late payments, charge-offs, and the “settled for less than full balance” mark can all stay on your credit report for up to seven years. For most people, rebuilding credit after the program takes time and effort.
There may be tax consequencesThe IRS treats forgiven debt as taxable income. If more than $600 is forgiven, your creditor will likely send you a Form 1099-C, and you’ll have to report it on your taxes. In some cases, like insolvency, you may qualify for an exception, but it’s smart to talk with a tax professional before enrolling.
Collection calls don’t stop right awayWhile you’re saving up funds for settlement offers, expect calls and letters from creditors or collectors. It can be stressful, and unfortunately, it’s a normal part of the process.
The risk of being suedSome creditors may decide to file a lawsuit before a settlement is reached. If they win, it could lead to a judgment, wage garnishment, or even a bank levy. While settlement companies know how to manage these situations, the risk is never zero.
No guaranteed resultsA settlement company cannot promise that every creditor will agree to a deal or that you’ll achieve a certain percentage of forgiveness. Some lenders are simply harder to negotiate with than others.
Fees for the serviceDebt settlement isn’t free. Most companies charge a percentage of your enrolled debt or the amount forgiven. usually 15 to 25 percent. By law, though, they can only collect this fee after a settlement is successfully reached and you’ve approved it.

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