If you’re overwhelmed by debt, it’s tempting to look for an easy way out—and a debt settlement company would love to promise just that. They advertise fast results, big savings, and relief from monthly payments. But as a debt settlement lawyer, I see behind the scenes, and these companies often create more problems than they solve.
As a lawyer who helps people navigate debt the right way, I’ve seen firsthand how these companies operate—and why you should proceed with caution. Before you sign up with a debt settlement company, here’s what you need to know.
Top Reasons To Avoid Working With A Debt Settlement Company
1. They Often Tell You to Stop Paying Your Bills
Most debt settlement companies instruct clients to stop making payments to creditors and instead divert those funds into a separate account they control. The idea is to pressure creditors into settling for less once you’re significantly behind.
The problem? This strategy puts you in default, damages your credit, and opens the door to collection calls, lawsuits, wage garnishments, and mounting interest and fees. And settlements, if they happen at all, may take months or even years.
2. They Can’t Help With All Types of Debt
Debt settlement only applies to certain unsecured debts—typically credit cards and personal loans. It doesn’t work for secured debts like mortgages and auto loans, and it usually doesn’t apply to student loans or tax debt.
Even with eligible accounts, not all creditors are willing to negotiate. Some lenders flat-out refuse to work with debt settlement companies, which can leave you paying fees for services you never receive.
3. You Might Still Owe the IRS
Forgiven debt is often treated as taxable income. If a creditor forgives more than $600, you’ll likely receive a 1099-C form—and be expected to report that amount on your tax return.
Many people who go through debt settlement are blindsided by tax bills they weren’t prepared for, putting them in a new kind of financial bind.
4. High Fees Can Cancel Out Any Savings
Debt settlement companies charge steep fees—often a percentage of the debt enrolled or the amount “saved.” That means you could end up paying thousands of dollars just for the service, before making a single payment to your creditors.
Worse, these fees are sometimes charged before any actual settlements are reached, leaving clients deeper in debt and with little to show for it.
5. There Are Safer, More Transparent Alternatives
You don’t have to risk your credit and finances on a one-size-fits-all solution. When you work with a trusted professional—someone who takes the time to understand your unique situation—you can explore real, sustainable options.
A knowledgeable debt professional can help you negotiate directly with creditors, create a realistic budget or repayment plan, and even guide you through bankruptcy alternatives if needed. More importantly, they’ll give you honest advice—without the pressure or fine print.
The Bottom Line: Quick Fixes Come With Long-Term Costs
Debt settlement companies market themselves as an easy way out, but the reality is often far more damaging. What they don’t tell you is that their strategies can leave you with worse credit, unexpected taxes, ongoing debt, and lost time.
If you’re ready to tackle your debt with integrity and strategy, talk to someone who will advocate for you, not just try to sell you a service.
Work With A Michigan Debt Settlement Lawyer
Find out if Michigan debt settlement lawyer, Stephanie Krane-Boehmer is right for you – contact the office for a free consultation. We are located in Rochester Hills and serve Oakland, Macomb, Genesee, Lapeer Livingston, and Wayne Counties.