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Common Myths About Debt Settlement: Debunking the Misconceptions

Many people in Manhattan and Long Island struggle with overwhelming debt and the resulting financial and personal stress. Negotiating a debt settlement with your creditors can provide significant economic benefits, but there are some common misunderstandings about what these settlements involve and how they work.

Myth #1: Debt Settlement Is Identical to Debt Consolidation in New York

People often use the terms “debt consolidation” and “debt settlement” interchangeably. However, these terms refer to two distinct processes to reduce or eliminate debts. Debt consolidation involves combining multiple debts you owe into a single loan with a lower interest rate, usually through a personal loan or similar means.

By contrast, debt settlement involves negotiating with your creditors to reduce the total amount you owe. Depending on how much you owe, you might make a lump-sum payment to your creditors or create a structured payment plan. While both debt consolidation and debt settlements aim to reduce your debts and financial stress, debt settlement is often the better approach for people who can’t afford to pay their creditors.

Myth #2: Debt Settlement Is Only for Those with Significant Debts

The amount you owe is one factor in determining whether debt settlement is the right move for you, but it’s not the only one. If you have comparatively low debts but making payments takes a large portion of your monthly income, debt settlement might provide greater financial benefits than consolidating your debts or filing for bankruptcy. A debt litigation attorney can review your situation to help you find the right approach for your needs and goals.

Myth #3: Debt Settlement Will Ruin Your Credit Score

Similar to filing for bankruptcy, negotiating a debt settlement may lower your credit score for a few years. However, the damage to your credit score likely won’t be as bad as you think. Furthermore, as you make your payments and return to financial solvency, your credit score should improve, since you won’t have large debt balances to worry about. In many cases, the short-term impact on your credit score is worth it for a chance to improve your long-term financial situation.

Myth #4: You Must Pay Upfront for Legal Help to Negotiate a Debt Settlement

Some people worry about pursuing a debt settlement because they have concerns about the upfront cost. However, federal law prohibits debt settlement companies from charging upfront fees. If a debt settlement company tries to charge you upfront fees, it could be a scam and you should seek help from another company.

Myth #5: Bankruptcy Is a Better, Faster Option Than Debt Settlement

Bankruptcy is a complex legal process that could take years to play out. Furthermore, you might have to sell many of your assets as part of your case, depending on the type of bankruptcy you file. While negotiating a debt settlement isn’t necessarily easy or quick, it’s often faster than filing for bankruptcy and usually has fewer potential downsides. Don’t overlook the chance to negotiate a debt settlement because bankruptcy seems like your only option.

Myth #6: You Can Negotiate a Debt Settlement Yourself

While you have the right to negotiate a debt settlement yourself, it’s in your interest to seek professional assistance. A debt litigation law firm like The Kohan Law Group understands the complicated rules governing debt settlements, can negotiate with your creditors on your behalf, and will help you explore all your options to reduce your debts.

Contact Our New York Debt Settlement Attorneys Now

The Kohan Law Group has the experience, resources, and proven track record to guide you toward a more solid financial footing. Whether or not debt settlement is the right approach for you, you can trust us to guide you through the legal process with compassion and professionalism. Call us today or complete our contact form for a free consultation.