The Federal Reserve’s latest report indicates a significant rise in serious credit card delinquencies, with 6.9% of users falling behind in Q1 2024. This has led many to consider debt settlement, a risky option where debts are negotiated down to less than what is owed. Debt settlement involves ceasing payments and funneling money into an escrow account managed by a settlement company, which charges hefty fees, often 15-25% of the owed amount. While it can result in savings, it also has severe drawbacks such as potential credit score damage, increasing interest and fees, and no guarantee of debt resolution. Alternative methods include debt management plans offered by nonprofit credit counseling agencies, which consolidate multiple debts at lower interest rates without harming credit scores. Debt consolidation loans are another option, though they require a good credit score. For those unable to repay their debts, self-negotiation with creditors or even bankruptcy may be viable alternatives.
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