What is debt settlement?
It is a method of ensuring that your creditors agree to settle your outstanding credits with an amount lower than what you actually owe them. Say, your total outstanding is about $2,000 then you can try and get your creditors to agree on a settlement of about $1,000. This means it is a faster means of clearing any of your debts including personal loans and credit card outstanding. On the flip side, debt settlement reflects badly on your credit scores report, as you are only settling part of your actual outstanding amount. Professional help is always available from debt settlement companies.
How do debt settlement companies work?
It is interesting that most debt settlement companies are usually associated with credit card companies, who in a bid to ensure that at least part of their dues are returned, form debt settlement companies.
Debt settlement companies, gather details about your outstanding debt details with different creditors, and then negotiate with these creditors and arrive at a consolidated settlement amount, which in most cases is lesser than the actual amount owed by you. Once this is done, all you need to do is make a single payment each month, which these debt settlement companies disburse amongst your creditors.
So, while it is a relief to have someone to work on your behalf, you need to be sure about the credentials of the debt settlement company you choose to handle your messy finances and credit scores.
What I need to know about the debt settlement company I choose?
1. Check the credentials of your debt settlement company with local and federal agencies that work towards consumer rights protection.
2. If the debt settlement company claims that it works for no profits, ensure that this name is not a cover up for high fees that they charge. In such a situation, it would be beneficial to choose from debt settlement companies that offer their services for a relatively lower fee. Deal only with those companies that charge you not more than about 15% of your total outstanding dues.
3. The debt settlement companies while negotiating with the creditors may ask you to stall all your outstanding payments. As this negotiation may take anywhere between a month to about three to four months, you would end up skipping payments for all these months, which in turn will damage your credit scores further. The best course here would be to make payments to your creditors unless the debt settlement company does it for you with immediate effect.
4. More importantly, ensure that the payment you make is accounted for and reported by the debt settlement company i.e. details of where is your money being sent and how much. If you don’t see such a commitment, it’s best to look for a more reliable company to handle your affairs.
5. Deal only with the debt settlement companies that sketch out and provide a detailed contract to you before making payments to them. Remember that you furnish all your personal and financial details to these debt settlement companies, so you need to ensure that your privacy is well-guarded. There are possibilities that your information might get embroiled in scams thanks to careless policies of these debt settlement companies.
6. Any debt settlement company that promises to wave a magic wand and spruce up your credit status is a fake company. All debt settlement companies can do is talk to the companies whom you owe and get them to sift out any details in your report that have negative impact on your credit scores.
Debt settlement, either done on your own or through debt settlement companies, comes with its implications, which you need to understand before considering it as an option. Either ways you need to be well-versed with the Fair Debt Collection Laws that will save you against unnecessary harassment from creditors.
The advantage of having a debt settlement company do the legwork is that you need not worry about the harrowing experience of dealing with creditors calling in for payments due. On the other hand, zeroing in on a debt settlement company requires good research and authenticity checks.