Choosing the Right Debt Settlement Company

A Google search for “Debt Help” will generate page after page of financial service companies offering different solutions to help you get out of debt. The various “Debt Help” options are generally Debt Settlement, Credit Counseling, Debt Consolidation, and Bankruptcy. In this article I will focus on Debt Settlement and what you can look out for in the consultation process to help you make your decision with confidence. For more information on Debt Settlement and how it works, please visit www.selectdebtrelief.com

Most Debt Settlement (also known as Debt Reduction) companies follow a similar process in qualifying and enrolling their clients into the program. I will break this down into 5 steps:

1. Initial Contact: Many customers will find a list of “Debt Help” companies by typing phrases into search engines such as Credit Card Debt, Get out of Debt, or Debt Relief. The initial contact will be initiated by filling out a form or calling the company directly. This first call will give you the most clues on what kind of business you are dealing with. The most important thing to remember is that Debt Settlement does not work for everybody. If a Debt Consultant makes the program sound like everyone gets accepted, you do not want to go with that organization. The only way a company can successfully reduce your debt is if you are in a financial hardship. Basically, if you don’t need the help, the program will not work because the creditors will have no reason to lower your debt amounts. If you’re current on the bills you still might qualify for debt reduction but only if you are struggling to make the minimum payments. If a Debt Consultant neglects to ask about your state of affairs and pushes you to send in your credit card statements, hang up and call a firm that cares about your specific predicament. An ethical Debt Consultant representing a reputable firm will discuss all the aspects of Debt Settlement, both positive and negative. Remember If it sounds too good to be true, it is. If the initial phone conversation is going well and you have a general understanding of how Debt Settlement works, then it is time to have the company review your credit card/loan statements or a credit report.

2. Submission of Credit Report or Statements: If a company approves you without reviewing your statements, this is a bad sign. Reputable Debt Reduction services will want to review your statements or a credit report to do a comparative analysis. Having the company review your information is part of the approval process and in no way should commit you to anything. This part of the process is crucial because the specific creditors that you are indebted to historically settle at different amounts. The amount by which a creditor will reduce your debt will vary depending on the debt settlement company, financial hardship, creditor collection practices, and credit card delinquency. The job of the Debt Reduction Company is to take everything into account and give you the most accurate quote possible. If you speak with a Debt Relief company and this step is missing, I would not recommend taking the process any further.

3. Underwriting: The underwriting (also known as approval, qualification) process is designed to ensure that only qualified applicants are being approved for the program. This is an extremely important step to a reputable Debt Settlement firm because it’s a system intended to help ensure that approved applicants make the transition to satisfied clients with the highest rate of success possible. If a company is letting everyone in the door, chances are many of these clients are getting settlements rejected by their creditors because they are not qualified to have a Debt Reduction.

4. Approval: If you are approved for a Debt Settlement program the consultant will be able to tell you how much your monthly payment is and for roughly how long it will take for you to be debt free. In the field of Debt Settlement the successful programs are usually not more that 3-4 years in length. Every creditor has a window of opportunity when they are willing to accept settlements and the vast majority will be approved within 3 and 42 months. If a company says that they can reduce your debt by fifty percent and offers you a 5 year program, be cautious. In Debt Settlement the creditors will be paid off one at a time and the possibility of legal action from the creditor increases as the debt becomes more delinquent.

5. Agreement: If the approval is within range and you would like to move forward the next step is to look at the agreement. The agreement should clearly state your monthly payment and fee schedule. Make sure to read the entire document and write down any extra questions that come up. You should be able to cancel the Debt Settlement mid-program if needed, without being responsible for future monthly payments. Of course nobody enters a Debt Settlement Program intending to cancel 10 months down the road but if something unexpected happens to your income, you need to be able to sever the relationship. If you read the agreement and it seems the opposite of what your Debt Consultant explained to you, it is not a wise idea to sign up with that company.

Now that you have found the best company for your needs focus on your new monthly payment. If you ever can afford to pay above your minimum monthly, I highly recommend doing so. Remember, the goal is to pay off this debt as fast as possible. Stay in communication with the customer service department and refer communication from your creditors to the Debt Relief Company. Before you know it the debt will be showing $0 balances and you will be on the road to financial freedom. If you ever get discouraged in the program and the anticipated 2-3 years to pay off the debt, just remember the alternative of making minimum monthly payments or the financial position you were in before the program started.



Thanks to Adam Jasa for contributing this article to our Bankruptcy blog:

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When it comes to seeking debt relief, many Americans feel the only viable option they have is credit counseling or filing bankruptcy. What many people are not aware of is the little known process of debt settlement. The goal of debt settlement is to, first off satisfy your creditors for less than what they claim you owe and two save you as much money as possible during the process.

One reason many people choose a debt settlement company is because their debt amounts are too high for them to realistically manage to payback in full and want to avoid bankruptcy. Another reason why thousands of Americans choose a debt settlement company is because they are extremely upset and fed up with the credit card company over the fact that their interest rate has increased to an unfair high rate like 28 - 30% and the company refuses to lower it no matter how much you plead.

The number one reason why Americans choose a debt settlement company is because their desire to have closure on being in debt and their priority of becoming debt free becomes their number one goal. This outweighs any real or perceived thought of any negative impact that it could have on their credit history while going through the process of debt settlement.

According to the Fair Isaac Company your debt to credit limit ratio accounts for more than 30% of your score, so it becomes absolutely essential to eliminate your debt first when you are trying to improve your credit score. Also remember your credit report is only a snapshot in time and is never a permanent record, you can recover and improve your credit score over time. Everyone gets a second chance in America!

The banks would love to keep you in the mind set that your credit score is absolutely the most important part of your life and by not paying them back in full would decrease your score and put you in the gutter forever. By all means your credit is important but should not completely dominate your life. This mentality works in the bank’s behalf and keeps you in fear, just where they want you.

Think about it, if the banks were really concerned about you and your credit score, then why extend to you more credit on your current credit card so you can charge more when they know that this will decrease your score. So do they really care? NO.

When researching the option of debt settlement as your choice to become debt free understand that there are basically two types of companies to use when considering who you will choose to settle your debts. First there are the very common non-lawyer based debt settlement companies which comprise of over 95% of the companies currently advertising over the internet and TV. The rest are law firms that practice debt settlement as one of their services.

In the rest of this article I am going to list some of the major important points that you need to consider when choosing a debt settlement company to help you become debt free. As well as give you a warning sign for each point when speaking with the representative of a debt settlement company.

1. The company should save you at least 40% of your debt including fees and paying your creditors.

You can usually save 20% on your own with a little effort but any more than that requires experience and negotiating savvy.

Warning Sign

When you are speaking to the representative from any debt settlement company you need to be cautious and do your homework. There are many debt settlement companies that just want to make as much money as possible without any real regard for the client’s best interest. A lot of these representatives will say just about anything that pleases you to enroll you in their program. One way to recognize this type of company is by the tactic of setting a monthly payment amount to whatever the client wants. Usually, it’s very low and for a much longer period of time than what other reputable companies offer. This defeats the purpose of their claim of saving huge amounts of money because the interest keeps growing and the consumer does not realize that the longer the payback plan time frame the less they save.

2. Make sure your payback plan is in a realistic time frame to complete this process.

The major benefit of debt settlement is to become debt free in a very short period of time verses paying minimum payments to the credit card company which averages over 38 years to pay back. You should choose a debt settlement company that will focus and emphasize on enrolling you to becoming debt free in two years or less, but only under specific circumstances no longer than three years.

Warning Sign

By stretching a debt settlement payback plan farther than three years you’ll never receive the full benefits that you were told in the beginning. Why, because of accruing interest. In other words the percentage of money your saving on the original debt decreases drastically when you enroll in a program that has you paying for four or five years because the debt amount drastically increases.

3. Make sure the collections calls will be stopped.

One of the negative aspects of debt settlement is that you do need to fall behind in order for these creditors to be willing to accept less. While falling behind you will get barraged with calls from collection agencies. Simply put these can be very annoying, scary, embarrassing, and aggravating. Now when it comes to preventing collection calls from 3rd party collectors, only by retaining a lawyer to represent you will stop them from calling. The Fair Debt Collection Practices Act states that if a client has attorney representation the 3rd party collector by law must deal with the attorney and not the debtor. Once the collector has been notified but continues too contact you directly then the collector becomes subject to a potential law suit.

Warning Sign

If a representative from a non-attorney based debt settlement company tells that they can stop the collections calls ask them how and why the collector has to abide by what the debt settlement company claims. By law, the collector does not have to deal with them. Typically their advice is to send a cease and desist letter; this can stir up a hornets nest. While this may stop the calls it will leave the collector no other option of contacting you to collecting the debt. So if they wish to continue to pursue with their collection attempts they will have to serve you papers to appear in court, meaning that you will be sued.

4. Make sure the company is reputable.

A good place to start is to check the Better Business Bureau (BBB). Next thing to consider is how long the company has been in business. Also look for a membership in T.A.S.C., the regulating body for debt settlement as this organization sets ethical standards for its members. A general rule of thumb is to look for a company that knows what they are doing and have settled many people’s debts in the past. Be sure the company discloses that this process will negatively impact your credit score and that they cannot guarantee how much debt will be settled.

When it comes to law firms you have an extra layer of protection, the bar association. Check the state bar for the attorneys standing if you are going with a law firm. The attorneys are held to a higher standard by being a member of the bar association. With unanswered complaints to the bar an attorney can lose his/her license and business. The attorney cannot get another law license and just open up somewhere else. So it is in their best interest to do the best job for the client. Attorney based companies will often charge higher fees however than non attorney companies so weigh your options carefully and make the decision that is best for you.

Warning Sign

This is pretty obvious, if a company has an unsatisfactory record with the BBB and is not a member it would be best to stay away. If a law firm is not in good standing with the bar in other words under investigation, then stay away. If the company is relatively new and is showing some of the warning signs mentioned above, definitely stay away.

While debt settlement can be a very smart and viable option for many you need to be very cautious about the organization you are employing. By following the points and warning signs above you will greatly reduce the risk of being enrolled into a program that will not benefit you.



Thanks to Christina Costa for contributing this article to our Bankruptcy blog:

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I did not understand what a debt settlement company was all about. I thought I did but I soon found out it was not what I thought. I have made a mistake! They have a lot of my money and I thought I was doing the right thing. I just want to get my bill paid. Thank you.

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If you are behind on paying your debt, beside debt consolidation, there is another method to settle your debts with your creditors; this process is called Debt Settlement. Debt settlement or also know as debt negotiation, is a process of contacting your creditors and negotiating a lump sum to payoff you debts. Sometimes the negotiation is initiated by your creditors; they may send you a letter offering you with a settlement amount, most of time is less than 50% of you balance if you make the payment in full within 10 to 20 days.

Debt settlement can be the most economical option for you to get rid of your debt. But there are some drawbacks. This article will review the negotiate terms to payoff your debt using the debt settlement method and alert your on the debt settlement drawbacks.

How Negotiate Terms to Payoff Your Debt

You can do this yourself (DIY), but if you think you are no confidence in getting it done, you can also hire a professional debt negotiator (also know as arbitrator) to do it for you. Debt settlement with amount 50% or less than your balance is a common practice in the market as the settlement in full.

Debt settlement can save you the most money in interest and principal payment; but you need to have the money to make lump sum payoff of your debt. Thus, you need to determine your current financial affordability before choosing this option to payoff your debt.

One thing you should keep in mind is because you are negotiating with your creditors to outcome an agreement to settle your debt with some reduced amount. Some creditors will report that remaining amount as “deficiency balance” to the credit bureaus as a negative item and it will be noted at your credit report and impact your credit scores. Hence, if you can arrange a deal with your creditors so that they will NOT report the deficiency balance then that will be your best course of action; if not, your credit will suffer for 7 years.

Determining What You Can Afford

First of all, you need to determine your affordability to get the money for lump sum payoff of your debt. The common ways of getting this money are through saving, tax refunds, home equity loan, second mortgage or refinance your existing house & etc.

If you are planning to get the lump sum of money through a loan, you should analyze your ability to borrow the money and reviewing your repayment capability of your new loan, else you may drop into another debt trap later.

You may get the service from a professional debt negotiator to set up a payment plan for you and negotiate with your creditors once you have saved the money for the settlement.

Which debt to settle first?

Usually the best debts to settle first are the ones which charge higher interest rates, and that will make the most dramatic change in your monthly budget.

Choosing a professional debt negotiation service

Debt negotiation services have more resources and knowledge to help you get the best payoff for your debt. Selecting a reputable debt negotiation agency is important for you to get the best service out of it. Develop your own list on the potential debt negotiation agencies and check them with the Better Business Bureau at www. bbb.org. We recommend ADNS (Attorney Debt Negotiation Solutions) Services for debt settlement services because they offer a free consultation with a financial analyst.

Summary

Debt settlement can be the economical ways to get rid of your debts. But you need to analyze your ability to borrow or access money, as well as reviewing your debts, and the monthly payments you could afford, to see if settlement is right for you.

Cornie Herring is the Author from StudyKiosk.com. “StudyKiosk-Credit Basics” is an informational website on credit basics and debt consolidation. To see recommended, credible lenders and loan service companies, visit: Recommended Bad Credit Debt Consolidation Services and Lenders



Thanks to Cornie Herring for contributing this article to our Bankruptcy blog:

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If you are dealing with mounting debt and old unpaid bills, you may be a candidate for debt settlement. Some individuals have found it to be the best way to get out from under a large amount of debt. Debt settlement is most successful with unsecured debt such as credit cards, medical bills, and store credit. It is not as effective with secured debt such as a car loan because the asset the debt is secured against, in this case the car, will be repossessed, if the loan isn’t paid in full. And of course debt settlement is not at all appropriate with mortgages.

You should consider this alternative when you find that you are unable to keep up with current credit card payments or have credit cards that are frequently over limit. Once these things start to occur, it is very difficult to break the cycle. Over the limit fees, late charges, and other fees start to kick in and increase your debt total.

Debt settlement is just that… settling your debt with each of your creditors. Not surprisingly, many creditors would rather accept partial payment on a debt, as opposed to no payment at all. When accounts reach a critical point credit card companies realize the odds of receiving payment in full drastically decrease. Many debtors consider bankruptcy at that point which legally eliminates the debt.

If you consider debt settlement as an option, you have the choice of working with a debt settlement company or performing the task yourself.

Settlement companies charge a fee to contact and make arrangements with all of your creditors. Sometimes the fee is in advance of reducing your debt. You pay regardless of whether the settlement company is successful or not. Others charge a portion upfront and the remainder when the settlement is complete, and still others charge a percentage of your entire debt load paid after the settlement is completed. These companies are skilled at performing this service and may you countless hours of negotiation and frustration.

Many creditors are more inclined to negotiate with a company rather than the individual consumer. They have even been known to lower interest rates and remove late charges and over limit fees. It’s easier on you if you don’t negotiate with the creditors. Some creditors may try to browbeat you into a higher settlement or no settlement or threaten you with legal action. Creditors are less likely to do that with a settlement company.

Until the debt is actually settled, not just agreed to, but the payment has been made, the creditor can still take legal action. Or the creditor can turn the account over to a collection agency which means the settlement process starts all over again.

There are several valid reasons to consider debt settlement. First and foremost, you get a fresh start. All your unsecured debt is gone. That means that with hard work and timely payments on any new credit you can re-establish a good credit standing.

Because the majority of creditors are willing to settle for less than the total balance due, your mountain of debt will be paid off more quickly as well. The downside is that each creditor will most likely report the short pay to the credit bureaus and that will hinder you in obtaining new credit.

Debt settlement can stop the credit nightmare if used wisely.



Thanks to Dee Power for contributing this article to our Bankruptcy blog:

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