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No legitimate debt settlement company will promise to reduce your debts by thousands of dollars in just a few weeks. While they can get your debts reduced, this is a more time-consuming process. The way it generally works is that you start sending the company money instead of to your creditors. This money is deposited into an FDIC-insured trust account that only you can manage. While this money is building up, the debt settlement company will be negotiating with your creditors. When all of your lenders agree to the proposed settlements, the money that has accrued in your trust account will be used to pay for the settlements. However, this money will not be distributed until you approve a payment plan and allow the money to be released from your trust account.
So is debt settlement for you?
Debt settlement can be an excellent way to pay off debts but there are several caveats. First, be sure to follow the tips in this article to make sure the company you've chosen is honest and reputable. Second, understand that debt settlement will have an effect on your credit score as will a bankruptcy. However, it will be much less severe. Most experts believe that a bankruptcy will cut your credit score by about 200 points. In comparison, debt settlement may reduce it by only 80 points. But when all is said and done, debt settlement can be much better then continuing to labor with that mountain of debt.