My experience also tells me that most people are very concerned about their credit score or rating. Here's what a debt settlement process may do to it. First, you have the lender reporting the debt as delinquent. Next, the debt would charge off. If you are sued, there would be a negative public record entry on your credit report. At each stage your score would drop more and the amount you owe would increase from fees, interest, penalties and legal expenses. How much fun is this? For you, none; for some collectors, much; and for the debt settlement company, fun is not the issue, fees are. In the statistically unlikely event that you have a creditor who will settle a debt, your credit report will show an unpaid charge-off and a settlement. Both items are significant negatives for your credit score.
But, as the late Billy Mays used to say, "Wait, there's more!" The amount of debt that is forgiven is not forgotten. IRS rules state that if more than $600 is knocked off your bill (you'd be fiscally insane to go through all this for less), a 1099 is issued and you have to recognize the settled portion of the debt as income ... and pay taxes on it!
The Federal Trade Commission is currently investigating the debt settlement industry and is expected to come down hard on current industry practices. In the meantime, if you really want to try your luck at debt settlement, I suggest you see a reputable attorney. They can offer you sound ethical advice, hands-on help dealing with the collectors and shield you from collection calls. They may even be able to help keep your credit more or less intact during the process by careful and concerned negotiation. Of course, this help never comes cheap. But neither does the alternative.
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