In ads, the average debt settlement company champions itself as having come to save the day. The lure of setting up an appointment with the experts and most especially getting those huge debts off your chest can make you take action without thinking of its consequence. A lot of controversy surrounds the debt settlement industry much of which bothers around the fact that there’s little or no entry requirements other than having set up a company that wants to settle your debts. This has led to the many frauds and some well intending but unqualified and inexperienced companies to join the fray with those who truly are qualified for your business.
“Settled Debts for Less Than…”
When choosing a debt settlement company, there are many factors to take into consideration. It’s not your everyday shopping where the cheapest offer carries the day. The debt settlement process will most likely leave you worse-off credit wise and anything you had of a good relationship with creditors you were indebted to pretty much goes into the ocean. Your credit report will include the phrase “settled debts for less than” or some other phrase that means the same thing. This is not what you want creditors to see especially if you’re someone looking to still obtain unsecured credit at anytime in the future. You can be rest assured that that will be listed for the next seven years if not more than.
There is no clear cut extent as to how much your credit is damaged once you go the debt settlement route. It’ll all depend on the experience of the company you’ve chosen to work with and other factors that range from how much debts you already owe and how much of it you’re willing to pay off as part of the debt settlement plan.
Not Guaranteed to Work
If you don’t already know (you might not since no one includes this in the ads), the debt settlement process is not guaranteed to work. On major flaw of the debt settlement process is in having customers stop paying any amount whatsoever (not even the minimum payment) to your creditors – just this should cause your credit score to nose-dive. Up to 6 months will pass between the first month you’ve stopped making payments, and when the debt settlement company concludes negotiations with your creditors. This while late payment fees, interest rates, and other charges as a result of accounts nearing delinquency mean your actual debts might rise anywhere from 10% to 30% even when you’ve not made any new charges to these accounts.
Another factor that comes into play is what happens as soon as your creditors are notified of your intentions to settle debts owed. Except you’ve already discussed this, creditors generally don’t like the idea of debt settlement and why not since they usually would want to have all of the money you owe them. If a creditor doesn’t agree with debt settlement, you might get sued or served a court order to submit the contents of that escrow account you opened and sent monthly payments to on request of your debt settlement company. This occurs only on rare occasions but there’s a slim chance that it might occur anyway.
Commissions and Fees
Come to the aspect of commissions and fees. Although most debt settlement companies are registered as non-profit, the average company is actually “for profit”. Many require a percentage of the total debt owed in commission (anywhere from 10% to 20%). This means you automatically have more debt to cater for and even where commission is not collected, think of fees charged then weigh your options and do the math.
Perhaps, going for a debt settlement company is what you need based on the peculiar circumstances of your situation. Nevertheless we recommend going this route only as a very last option due to the impediments that might prevent your obtaining further credit in the future. Before calling a debt settlement company, contact your creditor and ask to lower your interest rates or minimum payments making sure to explain that you really need this to stay away from bankruptcy or to keep paying as the case may be.
- Charge Cards vs. Credit Cards – Identifying the Differences
- Consumer Credit Card Protection Law 2010′ – A Blessing or Curse?
- Qualify for Tax Exemption on Forgiven Credit Card Debt?
- How to Win a Credit Card Dispute
- Prioritizing Debt & Savings
- Credit Card Debt and Motivation
- Reducing Credit Card Debt in the New Year?
I truely am dumbfounded due to the truth about the public in debt. I signed up for a debt negotiation service and under about 14 months they were able to reduce the debt to about 55% of my wife and my total debt. There is no question it was a wonderful decision.
Debt settlement definitly seems to be becoming as a realistic strategic option for people struggling with credit card debt. For serveral years I have been following the trend quite closely and it is quite difficult to track what you receive for your settlement agreement. I know there are a number of debt settlement companies out in the market that offer terrific services and the debt cusotmers truely get great benefit, but I also know that there are a number of debt service providers marketing their services that are focused on collecting new customer fees and enrolling new subscribers. No doubt this is why there obviosly is so much new federal regulation regarding the debt consolidation industry. My uncle worked with a debt business and is very extremely satisfied with the outcome.