Increasing credit card debt is a financial crisis that is plaguing the nation. According to CNBC, the average American has $6,375 in credit card debt, up 3% from last year. And as credit card debt increases, so do debt relief companies who promise to dig you out of the hole. Debt relief companies are there to negotiate your debt for less than the amount owed. Although there are debt relief companies who are successful, there are also many companies created to take advantage of the consumer. One example is demanding large payments before performing a promised service and then failing to follow through, leaving the already fatigued consumer at a loss. As a result, the Credit Card Debt Relief Act was introduced in 2010. This law prevented debt relief companies from performing scam practices. Some of the most noted changes are:
- Companies cannot ask for upfront charges before performing a service
- Receiving an idea of how long the credit settlement may take (it could be months or years)
- Clearly relay the consequences to the consumer if asked to stop making payments to a creditor
- Companies give you a specific amount to save before a credit card settlement is negotiated
- They can only charge a small percentage of the full fee for every settled account
There have also been laws targeted towards the consumer. Although credit card settlement may be successful through the use of a debt relief company, it is not without consequences. When a creditor negotiates a credit card settlement for less than what is owed, the amount the creditor lost is reported as lost income to the IRS. And that tax burden will eventually trickle down to the consumer in the form of paying income taxes.
Regardless, settling credit card debt should still be a high financial priority. As soon as you are able to settle, you can focus on getting your life back. Building credit, revamping your spending habits, and saving for the future will outweigh the consequences of settlement. If you need a boost in getting started on your financial journey through credit card settlement, Shoreline Finance is here to get you on track. Feel free to contact us today!