No. of Recommendations: 6
From the section 2 of the FAQ:
Is signing up for a debt reduction service a good idea? They promised to settle my debt for "pennies on the dollar." -
In a word, NO. Several reasons:
1) No matter what the ad for the agency tells you, your credit record will be destroyed for seven years. Massive settlements for far less than the amount owed will look about as bad as a bankruptcy.
2) You don't need to pay someone to not pay your creditors and then settle for less. You can do that yourself for free. If you really want to destroy your good name, and go back on your good-faith promises and contractual obligations to your creditors, no need to pay anyone to do that for you. Simply stop sending your creditors money. In short time, they will begin harassing you for payment while destroying your credit record. (They will do this with or without the help of an agency.) You can settle then.
3) You will probably owe income taxes on the forgiven amount. At the end of the year, the settled creditor will probably send you (and the IRS) a 1099, detailing the amount forgiven. (The ad you saw on TV didn't mention that, did they?) You will owe your marginal income tax rate on that amount. This instantly reduces the amount of the "settlement" by whatever you are going to owe in tax in one nasty lump sum.
4) Really, it's a bad idea, trust us. We don't work for your creditors, and we still think it's not a good thing to do.

Also in the FAQ is information on legitimate credit counseling.

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