There are a number of ways to manage debt. But there is only one way to get debts actually reduced and that is to settle them by offering to make a lump sum payment for less then you actually owe. This option has become increasingly popular since the Great Recession. In fact, it has become so popular that many of the major lenders have waiting lines of people queued up to discuss debt settlement.
Why people choose to hire a debt settlement company
You could settle your debts yourself. This is called DIY debt settlement. However, most people choose to use a debt settlement company. There are several reasons for this not the least of which is that most people don’t consider themselves to be good negotiators. Second, if you choose DIY debt settlement you’ll need to have the cash in hand to make the requisite lump sum payments. Hiring a debt settlement company eliminates this because you’ll be sending it a fixed payment each month until it has settled all of your debts to your satisfaction. Of course, debt settlement companies are for-profit organizations and charge fees for their services. This is why it’s critical that you ask any debt settlement company these questions before signing an agreement.
Are you a member of the American Fair Credit Counsel?
Reputable debt settlement companies belong to this organization. It’s the watchdog of the settlement industry and its members must follow a rigid set of guidelines that include proper disclosure for consumers and maintaining practices to maximize consumer experience and completion rates.
How do you collect your fee?
No reputable debt settlement firm will try to collect its fee upfront. In fact, this practice has been banned by the Federal Trade Commission. A reputable settlement firm will determine its fee (usually 15% to 25% of the total amount of your debt) and then add a percentage of it to each of your monthly payments. For example, let’s say you owe $18,000 in credit card debt and the settlement company charges you 20% or $3600. If your program is for 24 months, then the settlement company would add 1/24th of that $3600 or $150 to each of your monthly payments. However, it won’t collect the $3600 until it has settled all of your debts. This actually amounts to a 100% satisfaction guarantee because you could drop out of your program at any time and it won’t have cost you a cent.
Have you had many client complaints?
Virtually every debt settlement company has had some client complaints as that’s just the nature of the business. However, the good ones won’t have very many of them. The way you can determine this is by searching for the company on the BBB (Better Business Bureau) website to see the number of complaints the company has had and how many were closed (successfully resolved). If the company has had numerous complaints and has a short history then it’s one you should definitely avoid.
Are you a member of the International Association of Professional Debt Arbitrators?
Members of this association have passed a training and certification program. This program requires participants to read and understand the Fair Debt Collection Practices Act and have had training in negotiating techniques, proper ways to communicate with lenders and budget analysis.
What‘s your right-of-recession period?
Right-of-recession is the amount of time you have to cancel out of your agreement after you’ve signed it. The purpose of this is to give you time to review your paperwork one last time and ask any questions before committing to a settlement program. For example, if a debt settlement company has a three-day right-of-recession and you sign an agreement on February 5 you would have until February 8 to cancel without any cancellation fees or penalties. Naturally, the longer the right-of-recession the better.
Are you a full service company?
Some so-called debt settlement companies are basically marketing organizations. Once you sign an agreement with them your file will be immediately transferred to a second company that handles all the negotiations and provides the customer support. This second company may have so many clients you have a big problem just trying to contact it. In comparison, debt settlement companies that are full service will handle every aspect of your case from negotiating to consulting and client support.
Will I be able to access my account online?
A reputable settlement firm will operate very transparently so that you’ll be able to go online and see exactly what work has been performed on your behalf. You should be able to see recent activity and progress as well as all settlement offers that have been made and the responses from your creditors. And, of course, you should be able to send emails directly to the company’s customer support department.