How do you feel about your debt? Do you feel as if it were an anchor weighing you down? Maybe you feel as if you were being dragged down into a bottomless pit. Or that your debt feels like a huge boulder sitting on your shoulders. Regardless of how you describe your debt there is one thing for certain and that’s you would like to get rid of it.
One way to eliminate debt that’s become increasingly popular over the past five or six years is called debt settlement. This is where you contract with a company to settle your debts using lump sum payments for less than you actually owe. Most legitimate debt settlement companies can get debts resolved for about 50% of their face value. If you owed, say, $30,000, a debt settlement company might be able to get that reduced to $15,000, which would definitely save you money.
Before you hire a debt settlement company there are questions you need to ask and here are 10 of them.
How long have you been in the debt settlement business?
There have unfortunately been a number of fraudulent debt settlement companies. While the Federal Trade Commission (FTC) has rooted out many of them it’s still possible you’ll be contacted by one. A sure sign that you may be talking with a scam artist if it’s been in business for only a year or two. Legitimate debt settlement companies will have been in business for at least five years. They will also be able to show that they have settled millions and millions of dollars of debt.
What are your fees?
Unethical debt settlement companies will try to get their fees upfront before they have settled any of your debts. Legitimate ones won’t take any of your money until they have settled all of your debts to your satisfaction. Also, ethical debt settlement companies will charge you a flat fee instead of taking a percentage of what they save you. Their fees are typically from 15% to 25% depending on the size of your debt as the more work they’re required to do in your behalf they more they need to earn. The advantage of the flat fee is that you will know going in exactly how much the settlement company will chrage you.
Will all my creditors negotiate with you?
Watch out if a company promises it will be able to negotiate with all your creditors. The fact is that not all lenders will. It is true that the major lenders such as the credit card issuers will agree to settle debts but smaller creditors may not. It’s important that the debt settlement company be honest with you up front as to whether it can settle all of your debts or only a portion of them.
Am I a good candidate for debt settlement
You will need to be a number of months behind on your debts and unable to make at least the minimum payments on them. You would also be a good candidate if you owe at least $10,000 or more in unsecured debts and have the financial wherewithal to make your monthly payments to the debt settlement company. If the company you’re dealing with is ethical you’ll know in advance what those payments will be a and need to think long and hard whether you’ll be able to handle them over the course of the two to four years it will take you to complete your program.
Are you a member of AADR?
AADR is the American Association for Debt Resolution. It is the watchdog of the debt settlement industry. To be a member of the AADR a company must pledge to treat its customers honestly, fairly and transparently. If the company you’re considering is not a member of the AADR you should definitely view this as a warning sign.
Can you stop all my creditors from calling me?
No ethical debt settlement company will tell you that it can stop all your creditors from calling you. It will contact them and tell that it is now managing your debts and going forward they should contact it instead of you. However, there is no way they can guarantee that all of your creditors will stop calling you. Debt settlement can be a lengthy process and some of your creditors could continue harassing you during the process or even file suit.
Just as no ethical and reputable debt settlement company will tell you that it can keep all your creditors from calling you it won’t “guarantee” how much settlement will save you. This will depend on several different factors such as your lenders and how much you owe each. Generally speaking, a good debt settlement company should be able to get your debts cut in half but they won’t guarantee this because they know every situation is different.
When can I expect my first settlement?
If you make your payments to the debt settlement company on time and follow your program correctly you should see your first settlement made within 4 to 6 months. However, this is not an exact science. If you carry big balances on, say, just a couple of credit cards it may take longer depending on the card issuers and your monthly payments.
How long does a debt settlement program typically last?
This will depend entirely on the size of your debt. If you owe $10,000 or less it’s possible that you could be debt free in as few as two years. However, it’s more typical for a debt settlement program to take up to four years.
How can I find a debt settlement firm I can trust?
As noted above, one good indicator that you’re dealing with a debt settlement company you can trust is if it’s a member of the AADR. It should also be certified by the Better Business Bureau with a rating of at least an A. You should be able to find many reviews of the company online, the overwhelming majority of which will be favorable. The company should also be able to show you a number of testimonials from satisfied customers.