considering debt settlement? know the facts.
Before pursuing debt settlement, it’s crucial to understand the risks. If you’re struggling with credit card debt, GreenPath can help. Eliminate debt and invest in your long-term credit health with a Debt Management Program.
To learn more, visit the Consumer Financial Protection Bureau
Be mindful of potential pitfalls if you are considering debt settlement…
The Myth of the “Fast Fix”
While debt settlement may boast quick solutions—enticing to anyone overwhelmed with overdue bills—their tactics can negatively impact your credit score and your financial health.
Framed as a lifeline or “fresh start,” the reality is that debt settlement can amplify financial challenges through accrual of steep fees, damage to your credit score, and even legal action from creditors.
Beyond the financial drawbacks, debt settlement can also be a lengthy and emotionally exhaustive process. Consider the worst-case scenario of learning that your wages are being garnished during a period when making ends meet is already a struggle.
Long-term Financial Impact
Debt settlement can severely damage your credit score and have lasting financial consequences, affecting your ability to qualify for loans, rent an apartment, or even secure employment in some cases.
Accrued Charges and Fees
Debt settlement companies usually advise clients to stop payments on their credit card bills. The resulting accumulation of late fees and penalty interest can ultimately increase your total debt.
Increased Collection Efforts
Ceasing payment on credit card bills can prompt creditors to intensify their collection efforts, potentially filing lawsuits to garnish wages.
Scams and Unethical Practices
The debt settlement and credit repair industries have their share of fraudulent practices. Tactics like offering to expunge negative information from credit reports are designed to exploit the financially vulnerable.
Incomplete Debt Settlements
Despite assurances, there’s no guarantee that a debt settlement company will negotiate settlements for all your debts, leaving some of your obligations unresolved.
Tax Implications
Any debt that is forgiven through settlement agreements is typically considered taxable income, potentially resulting in additional tax liabilities.
Bottom line? No debt solution should come at the cost of your financial security or peace of mind.
The Benefits of a Debt Management Program
Sometimes confused with Debt Settlement, a Debt Management Program (DMP) is a structured repayment plan designed to improve your credit health and financial resilience as you pay down your balances. Here are just a few reasons to consider enrolling in a DMP:
Simplified Payment
Upon enrolling in the Debt Management Program, you will deposit funds into your GreenPath account on your preferred schedule. We then use those funds to pay debts on your behalf, eliminating statement juggling.
Lower Interest
GreenPath partners with nearly 600 creditors across the country. These trusted partnerships allow us to arrange lower interest rates and monthly payments so you can eliminate debt faster.
An End to Collection Calls
Once creditors agree to the Debt Management Program, collection calls drop…and so do your credit card balances. You’re officially on the road to repayment.
Free Financial Education
Along with personalized guidance from NFCC-certified counselors, you’ll have access to financial courses online, budgeting calculators and worksheets, webinars, and more.
Last year, 8,998 people paid off their debt in full through the Debt Management Program.
Don’t Settle for Less
Need support in strategizing debt repayment? Free financial counseling allows you to understand your options, prioritize your short-term and long-term goals, and reclaim control of your financial story.
Frequently Asked Questions
Debt Management Program set up fees and monthly fees vary based on your state of residence and debt amount. On average, GreenPath clients are charged a one-time enrollment fee of $35 and a $28 monthly fee. This is minimal considering the amount of money our clients typically save in waived late fees, waived over limit fees, and reduced credit card interest charges.
We work with most creditors throughout the U.S., including banks, credit unions, retailers, medical providers, auto finance and collection agencies.
Since the goal of a debt management program is to pay off debt, the credit cards enroll in the program will be closed. Most creditors will usually allow you to continue using one card for emergencies and travel.
GreenPath does not contact the credit bureaus when you enroll in a debt management program. However, because you will be closing lines of credit during the enrollment process, your score may dip. But over time, most people see their scores increase, because they are making payments in-full and on-time each month.
Yes, they are different. Debt management plans are designed to pay off the entire amount you owe in 3 to 5 years. If we can lower your interest rates, the total amount you pay to your credit card company is typically less than if you paid on your own. Debt settlement typically involves requesting credit card companies to forgive a portion of your debt in exchange for a lump sum payment.
Counseling Hours
A Debt Management Program is designed to pay off your debt in 3-5 years, while helping you develop sound financial literacy.
Contact GreenPath to conduct a free debt counseling session to see if our debt management program is right for you.