Debt Settlement Companies Revealed

To start off with, I want to make sure you understand whether or not you really need a debt settlement program in the first place. I say this because there are other debt solutions available, and one of these might be better suited to what your needs are. If you have good credit, can reasonably repay your debt in full with only some interest rate assistance, and can afford a monthly payment similar to the one you are now making, then a Consumer Credit Counseling Service (CCCS) may be a better answer for you. They can put you in a Debt Management Program (DMP) and you can keep your credit rating intact during the process. If the size of your debt is quite substantial and you already have damaged credit (or know that you will in the near future), then debt settlement is a possibility. Run your numbers through a debt calculator and find out how long it will take you to pay off your debt at your current pace. You may be shocked to find out that you could be repaying your debt for 20 to 30 years, possibly even longer. If this is the case then you need to be realistic about where you stand. It's likely that you're a good candidate for either a debt settlement program or, as a last resort, bankruptcy.

I raised the issue of your credit rating in the previous paragraph, so now would be a good time to discuss the subject. Consumers can get their priorities out of order when it involves the subject of their credit score, so I want to make sure that you're clear about your priorities when you're faced with a serious debt problem. I say this because I've personally seen many people who could have wiped out their debt problem in just a few years through debt settlement, and yet they decided not to do so because they wanted to "protect" their credit. It is true that debt settlement programs will cause damage to your credit in the short term. Sadly enough, many of these same people then needlessly end up having to declare bankruptcy (with a far more devastating impact on their credit) at some later point because they never resolved their debt problem. In the meantime, what did their credit actually do for them? Let me point out that the time you should protect your credit is when you're going to try to get a home loan or make some other big purchase. It can help you to qualify for a better interest rate. Let me also point out that right now your biggest concern is paying off your debt, not acquiring more debt. You need to make up your mind which one you want to do. Have you ever tried rubbing your stomach with one hand and patting yourself on the head with the other hand at the same time? You probably can't do either one very well when you're trying to do both at the same time. Don't try to do the same thing with your finances. Here's another thing to consider. If you have a serious debt problem, even if you've never missed a payment yet, then any lender can see your problem when they look at your credit report. Do you really think they would consider you a good lending risk at this point with all the debt that you need to pay off? What exactly are you protecting? OK, enough said.

By now you should have a pretty good idea if you might need a debt settlement program, so let me go into detail here about how they work. Let's say you have $25,000 in unsecured debt from several credit cards and a personal loan. The debt settlement company will negotiate with your creditors on your behalf, and you can expect to have your debt cut in about half (40% to 60%) or to $12,500 and for the interest charges to be eliminated. As a result, you can dramatically shorten the amount of time it will take you to pay off all your debt, and of course you also end up paying your creditors much less money in the process too. While you're in the settlement program, you stop paying your creditors and instead make a consolidated monthly payment to the settlement company that includes the fees they charge. They will accumulate settlement funds for you in a special trust account. They wait until the settlement-focused timeline that they follow is right, and for enough money to accumulate in the trust account to possibly pay off one of your creditors, and then they negotiate with them to get the best settlement that they can. When they get a good settlement offer, they notify you and request your approval, as you must personally approve any disbursements from the trust account. Then they ask for the settlement offer in writing from the creditor before giving them any money. They continue this process, one account at a time, until all your debt is paid off. In a nutshell, that's how debt settlement works.

I referred to a "settlement-focused timeline" in the last paragraph, and the term deserves some further explanation because it is an important concept for you to understand. As you can imagine, credit card companies aren't motivated to settle an account if you've been making your payments. In fact, people who continue making their minimum payments month after month are the ones who provide them with the big profits they make. They'd like to keep you right where you are, paying mostly interest and getting almost nowhere with the balance you owe them. So it is necessary for you to stop paying them before they will have any interest in settling your debt. After about 6 months without payment the account will normally go to collection, and this is the point at which the settlement company may move forward with the negotiation process.

It is important for you to be aware that your creditors will be calling you (if they haven't already) asking for money when you become late with your payments. The actual number of these phone calls can vary greatly from one borrower to the next. While there are steps that a settlement company can take to reduce or minimize your collection phone calls, don't believe a company that tells you that they will make them stop completely. This is one of the settlement program's downsides, but most people find it a small price to pay on their way to becoming free of their debt.

You should also know some of the various deceptive practices companies use when you're shopping for a debt settlement program, and the ways in which they can structure a settlement program that isn't in your best interests. The first and most obvious way is that some companies out there are simply scams that take your money, and never pay your creditors or do any of the work you paid them for. That's why I recommend going to the Better Business Bureau website and checking the company's consumer feedback before ever considering doing business with them. Another thing to avoid is a company that collects all their fees upfront before doing any work. A legitimate company should spread their fees over at least the first 12 to 18 months.

Some companies will also quote you a very low monthly payment just to get your business, when in fact a significantly higher payment is what's needed for you to take the most advantage of the program. Most consumers should be put on programs of 24 to 36 months, and only extreme cases should require 48 months or longer. The reason is that you are charged a fee each month you're in the program, so the longer the program, the more it will cost you and the less money you will end up saving. A properly structured program should balance the two crucial elements of the program relative to your budget: the amount of the monthly payment (the higher, the shorter the program) and the length of the program (the longer, the lower the payment). A good credit card debt relief counselor should consider your overall financial situation before making a recommendation. So don't let a low quote impress you until you understand all the details. Ask the counselor what the downsides are of doing the program the way that they're suggesting. An honest counselor will be candid about the pitfalls of going too far one way or the other.

I hope this information has helped you to get a better understanding of the important details you need to consider about debt settlement programs and the companies that offer them. A properly structured program from an ethical company with good consumer feedback could be the debt relief solution you need to get you out of debt quickly and affordably.