Dave Ramsey Says to Steer Clear of Debt Settlement Companies for These 3 Reasons

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  • Debt settlement companies promise to help you get out of debt, but finance expert Dave Ramsey recommends avoiding them. 
  • He believes your financial situation will get worse for several reasons if you work with a debt settlement company. 
  • Some are scam artists and often they charge huge fees for their services. 

Should you avoid these companies if you're in debt?

Debt settlement companies promise to help people who owe money. Typically, these companies will negotiate on your behalf with creditors when you are in over your head and too deeply in debt to climb out. Credit card companies may agree to allow you to pay less than the full amount due, and the debt settlement company will help you enter into a payment plan or negotiate a lump sum payment. In exchange, they will collect a fee. 

While these debt settlement companies promise that this service can help you deal with your debt for good, finance expert Dave Ramsey doesn't believe you should take them up on this offer. In fact, Ramsey has offered multiple reasons why he doesn't think working with a debt settlement company is worth it. 

1. Some debt settlement companies are scam artists 

One of Ramsey's first big reasons for not using debt settlement companies is that many of these businesses are not on the up-and-up. 

"Many 'debt settlement' companies accept your money only to leave you high and dry, worse off than you were before," Ramsey explained. Since it can be difficult to tell the good debt settlement companies from the bad ones, you may just want to avoid using this service entirely -- especially since there may be no real need to do so, as Ramsey also explains later. 

2. Debt settlement can come at a big cost

Ramsey also urges you to avoid debt settlement companies because of the expense associated with using these services. 

"Many debt settlement companies out there claim to help you with your debt -- but what they're really doing is collecting your hard-earned money (plus a fee), not negotiating with your creditors, and letting your debts rack up even more late fees and interest." 

Ramsey explained that even if a debt settlement company is able to successfully negotiate with creditors on your behalf, you will end up spending needlessly on fees you'll owe to this company.  

3. You can do the work of a debt settlement company on your own 

While the high cost of debt settlement, combined with the difficulty finding a legitimate service, are both good reasons to steer clear, the single most important reason that Ramsey lists for avoiding debt settlement services is that you don't need them. They negotiate a payment plan or a lump sum payment arrangement with creditors, but you can do that on your own without their help -- and without paying the fees they charge. 

Ramsey provided detailed tips on how to settle all of your different kinds of debt, including credit card and medical debt. But in every case, the basic advice is the same: "Call your creditor and let them know you're unable to afford your monthly payments now. Try to negotiate a lump-sum deal," Ramsey suggested. 

If you can pay a lump sum amount, you may be able to pay around 40% to 50% of the outstanding balance because creditors would rather get something than nothing. Ramsey suggests continuing to go back and forth with your creditors until you get a deal and then making sure to get it in writing. 

Ramsey is absolutely right on this issue and if you are having trouble and considering settling your debt, call your creditors yourself to start working on a plan today rather than wasting money on a debt settlement company that may be nothing more than a scam in the end. 

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