However tempting the persuasive ads are, which promise to drastically lower or even eliminate debt, the truth is that debt forgiveness is and remains a myth. Debt collectors are notorious for ruthlessly and tirelessly pursuing every penny owned to them. The “too-good-to-be-true” ads typically imply debt settlement rather than debt elimination.

Debt Settlement

Debt settlement companies which promise to cut your debt in half offer programs, requiring you to make monthly deposits into a trust account until the funds are about 50 or 60 percent of the debt owed. The settlement company will then negotiate a lump sum with your creditor to settle the account. The problem with debt settlement companies is that they charge you hidden exorbitant fees that come right out of your monthly deposits. So you may dutifully make your payments while only a small percentage of the amount paid is actually going toward debt payments. Meanwhile, debt collectors harass you with phone calls, letters and sometimes even wage garnishments despite the fact that you are making an effort to pay into the settlement account.

No Guarantees

Collectors have their own rules. One common requirement for even considering a debt settlement offer is that the overdue account must be at least six months past due. Even then it is not guaranteed that the lender will settle. Regardless of the outcome, the debt settlement company will keep the fee they collected from you.

Credit Score

When pursuing a debt settlement your credit score can suffer. It is a given that your creditor will report overdue debt to the credit agency. Then the debt would charge off. In the case that you are sued, your credit report will show a negative public record entry. As a result of these inevitable stages your credit score would drop while the amount you owe would increase because of fees, interest, penalties and possibly legal fees. And you just can’t win: even if your creditor will settle a debt, your credit report will still show an unpaid charge-off and a settlement, both of which will significantly lower your credit score. If this wasn’t enough, additionally, the IRS will issue form 1099 which means you will have to pay taxes on every amount above $600 that has been knocked off your bill

While the Federal Trade Commission is now probing current industry practices, consider working with a good attorney who can help you make the right decisions.