3 unexpected downsides of debt relief to know before enrolling
Summary
Debt relief programs can help reduce what you owe and simplify payments, but they also have some important downsides. These include hurting your credit score before it improves, possible tax bills on forgiven debt, and a longer, less predictable process than many expect.Key Facts
- Household debt is very high, with credit card debt over $1.23 trillion and average interest rates above 21%.
- Inflation is rising, making it harder for many people to pay their debts.
- Debt relief, especially debt settlement, may require stopping payments to save money for negotiations.
- Missing payments can lower credit scores and leave negative marks on credit reports for years.
- Forgiven debt might be counted as taxable income by the IRS, creating unexpected tax bills.
- Some exceptions to taxes on forgiven debt exist, like insolvency, but not everyone qualifies.
- Debt relief can take many months or longer, as you must accumulate funds and negotiate with each creditor.
- The debt relief process is often more complex and slower than advertised.
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