- Charges any fees before it settles your debts;
- Represents that it can settle all of your debt for a promised percentage reduction;
- Touts a "new government program" to bail out personal credit card debt;
- Guarantees it can make your debt go away;
- Tells you to stop communicating with your creditors;
- Tells you it can stop all debt collection calls and lawsuits; or
- Guarantees that your unsecured debts can be paid off for pennies on the dollar.
An alternative to a debt settlement company is a non-profit consumer credit counseling service. These non-profits can attempt to work with you and your creditors to develop a debt management plan that you can afford, and that can help get you out of debt. They usually will also help you develop a budget and provide other financial counseling.
Also, you may want to consider consulting a bankruptcy attorney, who may be able to provide you with your options under the law. Some bankruptcy attorneys will speak to you initially free of charge.
Warning: There could be tax consequences for debt forgiveness. If a portion of your debt is forgiven by the creditor, it could be counted as taxable income on your federal income taxes. You may want to consult a tax advisor or tax attorney to learn how forgiven debt affects your federal income tax.
For servicemembers with loans taken out before entering active duty military service, the Servicemembers Civil Relief Act (SCRA) provides a variety of protections, including an interest rate reduction down to 6 percent and foreclosure protections. Download our fact sheet to learn more.
If you are on active duty when you refinance or consolidate your loans, the new loan will not be covered under the protections of the SCRA since it is no longer considered a pre-service loan. For example, if you took out a student loan before you entered active duty, but then consolidate that student loan after entering active duty, you would not then be able to request an interest rate reduction down to 6 percent on that new consolidation loan. Or, if you took out a mortgage before you entered active duty, and refinance during active duty, you would lose the foreclosure protections provided under the SCRA.
If you still have questions about your rights under the SCRA, contact your closest legal assistance (JAG) office for more information. You also may be able to get assistance from your state attorney general .
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