Q: What are the risks in enrolling in a debt settlement program?

A: Debt settlement is an aggressive strategy. Instead of working with your creditors, as with debt management plans (DMPs), debt settlement has you fighting with your creditors -- sometimes, it's the only thing left to try. But as such, debt settlement does present a host of risks that every consumer should be aware of before embarking on the strategy. They include:

Damaged credit: By withholding payments to creditors and instead sending them to a designated account overseen by a debt-settlement firm, your credit will be tarnished. Ideally, you will be able to negotiate those "late" marks away, but there is a very distinct possibility that your credit will suffer even if everything else works out perfectly for you.

Increased collection calls: Once you've missed a few payments in a row, the collection calls will really start to come in.

Tax consequences: Any portion of your debt that's "forgiven" or negotiated away may be considered taxable income by the IRS and your state’s taxation department. Beware!

Potential lawsuits: Debt settlement is an antagonistic approach to ridding yourself of debt, and as such, your creditors have every right to sue you for payment in full. The possibility of landing in court is real.

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