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How to Choose a Debt Settlement Company?

Written by: Bryan Garner

Article Overview: Your guide to know if Debt Settlement is the right option for you. The red flags to look for and what to ask when deciding which Debt Settlement Company to go with.

How to Choose a Debt Settlement Company?

Debt settlement is a viable option for a lot of people who are struggling with their debts. Debt Settlement programs are designed for people who are either already behind on their monthly payments, struggling with their payments to the point where they are about to fall behind, or have come to the realization that paying the minimum monthly payments for the next 20 years cutting nothing but interest checks each month is just not an option. If you can continue to comfortably afford your monthly payments on time every month then by all means that is what should be done. If you cannot then the debt settlement approach could be a great option to consider. In order for debt settlement programs to work you have to voluntarily stop making payments to your creditors, fall behind on your payments each month and close down the accounts that are enrolled.

I know what you're thinking... Isn't that going to tank my credit rating? It depends, if your credit rating is already on the down slope then it can't hurt it much more than it already is, if you have a 700-800 credit score, then your rating will more than likely drop a considerable amount. So it's important to know where your priorities are. Can you realistically continue to pay on the debt for x amount of years and pay thousand pack in interest? If you can then do so, if you cannot then this approach could be for you. Debt Settlement is already an aggressive approach to debt resolution so it is important to enroll in a program that is 36 months or shorter. Anything past 36 months you are taking more of a risk of your creditors coming after you for the amount that is owed.

I am not an attorney nor should this be considered any type of legal advice, consult with an attorney for professional legal advice about statute of limitations.



Just depends on the statute of limitations in your state (the legal time period a creditor can legally collect on the debt). If you are approaching the statute of limitation on the unsecured revolving debt then your creditors will be more likely attempt to sue you for the amount that is owed. It is important that one is to the point of insolvency before enrolling in a debt settlement program. Insolvency means that your liabilities outweigh your assets, in laymen terms your expenses going out are more than the income you have coming in. If you are not insolvent then you could still enroll, but then you are again increasing your chances of being sued and you could have to pay taxes on any forgiven debt amount over $600.00 if your creditors issue a 1099 to the IRS for the cancelled debt. If you are insolvent at the time of settlement then you need to get a 982 form from the IRS website and contact them on the proper way to fill out the form and you won't have to pay the taxes on the forgiven amount if you can prove your insolvency. Pretty much show the IRS that your expenses are more than the income you have coming in on a monthly basis.

Another qualifying factor in your decision to go the debt settlement route is if you have a checking, savings, mortgage, car loan, or any other account with the same financial institution that you have credit card debt with. If you do they could freeze your checking and savings account or tack the unsecured debt on to the back end of your mortgage or car payment and increase your monthly obligations on those accounts which could ultimately cause you to fall behind on those payments. It is never a good idea to take unsecured debt and secure it with your home or vehicle. If this is the case then you would need to leave those accounts out of any debt settlement program. If none of the issues are a problem for you then it looks like the debt settlement approach is getting more attractive.

There are many debt settlement companies you could chose to go with, so how do you know which company to pick? There are a few red flags to consider when speaking with a debt settlement representative and I have listed a few.

Are they charging an upfront fee?

A: You should never have to pay hundreds or thousands of dollars just to start a debt settlement program.

Are they promising to negotiate the debt at a set amount?

A: No debt settlement company can guarantee any set amount at the time of settlements. Settlements can range from 20% of the balance up to 100% of the balance, depending on the status of the account. If it goes to legal then expect higher settlements, if you have assets available to pay the debts in full and your creditors find out then expect to pay higher settlements. However, most companies can generally get settlements around 40-50% of the debt amount.

Are they promising to stop all the collection calls?

A: No debt settlement company can guarantee to stop all collection calls. However there are laws in place to regulate your creditors. If it is the original creditor then they are still allowed to contact you once a day, but have to be within the guidelines of the Fair Debt Collection Practices Act. If it is a third party collection agency and the company has filed Cease and Desist letter with that creditor then they are no longer allowed to contact you concerning your debts and need to further all future communication to the Company you signed a Limited Power of Attorney with to handle your debts for you.



Are the enrollment documents easy to read and understand? Most importantly how are the fees structured in the payments each month?

A: The documents should be in laymen terms, you should be able to read the document and have a complete understand of exactly how the program works and the advantages and disadvantages of enrolling. The fees should be based on a 50/50 split from your first payment not your 3rd, 4th, or 5th. You should be building up funds to settle with your creditors from the beginning and shouldn't have to pay thousands in fees before you are allowed to start saving funds for settlements.

Are the numbers easy for you to calculate and do they add up to the same amount every time?

A:

Debt Amount x % of estimated settlement = A

Debt amount x Company Fees= B

A + B = Total Program Cost

Total Program Cost / Months to pay off = Monthly Payments

If your numbers are different then the monthly payment the company quoted you then you have a problem = Red Flag.

Are the negotiators certified?

A: The Company should be certified through the International Association of Professional Debt Arbitrators to ensure they have suitable employees capable of handling your account.

Is the company registered with Dunn & Bradstreet and do they have a good rating?

A: Very important, if you are hiring a company to help you with your finances then it is important to know how they handle their own finances. They should have an A rating with Dunn & Bradstreet

How long do you have to pay into the program before you start saving money towards your escrow savings account for settlements?

A: Again you should be able to start saving your funds from your initial payment. Preferably with an easy split to add up like a 50/50 split.



Does the same company handle your account from beginning to end?

A: A lot of debt settlement companies these days don't handle your account the entire time. Some just enroll you then sale your account to another company that offers back end services. So at the end of the day you have to deal with 2-3 different companies in order to get information about your account. So if you want to deal with the inconvenience then you can it doesn't neccessarily mean the company is no good, but it could be difficult when you're trying to discuss your account.



What type of security does the company have in place to protect your account numbers and personal information you have provided?

A: This day and age it is nearly impossible to keep everything secure online- whether it's the U.S. Government or your local bank. However, it is important that they have some type of security in place when it comes to your private information. An in house server and being VeriSign Secured is a good start.



Are there any pre-payment penalties or what happens to any amount you send in extra each month? Does it go to their fees or your escrow account?

A: There shouldn't be any Pre-Payment Penalties to paying your account off early. Any amount that you send in extra should be credited to your escrow savings account in order to give you the ability for an accelerated payoff.

Does the company you're working with show up on your credit report as a third party?



A: Debt settlement companies' names should not show up on your credit report. It should seem as if you have done it yourself and just simply fell behind on your payments for a short period of time.



How did the company tell you it would reflect on your credit report?

A: At this point you shouldn't be worried about how it's going to look on your credit report because you're already in the position of falling behind on your payment or about to. So of course it is going to have an impact on your credit report if you fall behind, but it will put you in a position where you can rebuild and have a fresh start.



What about the BBB?



A: All debt settlement companies should have an F rating as an industry with the BBB. The BBB disapproves of the entire industry due to the credit card companies' efforts in wanting to keep consumers in the wrenching cycle of paying nothing but interest checks for years to come. Simply put, the credit card industry is losing a lot of money when consumers chose the debt settlement route. However it is a lot better than bankruptcy where they could receive nothing at all. So they have sent lobbyist to Washington in order to attempt to make as much money as they possibly can through you cutting interest checks. When looking at the BBB you need to look at how many complaints the company has vs. the size and how many years they have been in business. No company can please everyone and is bound to have a few complaints along the way, but how the company responds to the complaints and how many they have is what is important. Check out your local Wal-Mart; see how many complaints it will have!

How long has the company been in business?

A: It is important that the company you're dealing with has been in business for at least 3 years. That is the time period it would take for a company to have successfully have clients that have been in long enough to complete their program. Any company that has been in business for less than 3 years may still be a good company but probably doesn't have the experience and true ability to know if their program truly works.

What happens to the money you have saved up in the program if you wish to get out of the program?

A: This is your money and should be either refunded to you or sent to a creditor of your choice.



I hope you have learned a few ways to help you in your decision on which way to go when trying to get some relief with your debts. I encourage everyone to do their homework when dealing with any Debt Settlement Company and definitely compare your options and see which programs are truly the best deals for you and are the most consumer beneficial.

Related Articles
  How Will Debt Settlement Affect my Credit
  How Does Debt Settlement Affect My Credit?
  Is Debt Settlement the RIGHT choice for you?
  What To Look For In A Debt Settlement Company
  Debt Consolidation A Top Rated Home Based Business

Article Tags: credit alliance group, credit card debt, creditors, debt, debt settlement
Referred by: http://www.creditalliancegroup.net



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