Easy Debt Consolidation

10 Debt Consolidation Myths #5: Debt Settlement Is Easy and Cheap

Bankrate has an excellent review of common misconceptions of debt management. Here is the next installment: Debt Settlement Is The Cheapest Way to Go..

The advice is right: between debt settlement program and bankruptcy, bankrtupcy is probably even better choice since you can put all the worst behind you.

Greenberg urges anyone introduced to a debt-settlement program to run hard in the opposite direction. "First of all, it's unethical," he says. "It's just wrong to make payments on an account and have the money sit in someone else's pockets until the creditor gives up on the collection calls." The real skunks insert a clause in the contract that says if you miss a payment to the debt-settlement company, it keeps all the money in the ante as a fee.

Secondly, this route dings your credit history severely, as all those "pay us now" letters count against you, not the company. Finally, the amount the creditors forgive in the end is considered income for you, and you owe taxes on that amount. "If you're going to take this route, you might as well declare bankruptcy," Greenberg says.