You’ve seen the ads, you’ve called for consultations, and you’ve pondered this thing 6 ways to Sunday and decide that Debt Settlement is an answer to your prayers. Moving forward with a debt settlement plan will make all of your creditors stop calling, will cut your payments and outstanding debt in half, and have you screaming “WE’RE DEBT FREE” into Dave Ramsey’s ear inside of 4 years. Or so you are told.
When the bloom is off the rose and reality sets in, a majority of consumers will be screaming, but it will be screams of anger at the silver-tongued, less than forthright sales person, and not the Debt Free screams of joy that have become commonplace for Ramsey’s call in radio show.
A typical debt settlement company will help you get debt free. It will likely take a bankruptcy to do it, but who really bothers with the fine print anyway? As a sales person once told me “details schmetails.”
When Should You Consider Debt Settlement?
The problem with most debt settlement companies is that they over sell credit card debt settlement.The strategy itself can actually be very effective for consumers, but it should only be used in the right sets of circumstances.
Here are some general indicators to help determine if settlement might make sense for your situation.
1. You can no longer or barely afford to make the minimum payments on your debts.
2. You have determined that an interest rate reduction or a debt management program is not going to provide enough relief to solve the problem.
3. You have met with a bankruptcy attorney and determined that you would be unable to qualify for a chapter 7 bankruptcy.
4. You have access to a lump sum or will be able to save up enough money within a reasonable time (2 years) to settle your debts and satisfy your creditors.
5. You understand that withholding payment from your creditors could result in litigation.
6. Getting out of debt is more important to you than trying to preserve your credit rating.
7. You are prepared to deal with creditor phone calls asking you to pay on your debts.
These are just some general things to be aware of. The reality is that every consumer should have a thorough evaluation of their entire current and potential future financial situation. Things such as your age, your future earning potential, your assets, your retirement plans, your credit and much more, need to all be part of the equation.
Should You Hire A Company To Settle Your Debt?
Deciding that a settlement strategy is the best option for you is only half the battle. With hundreds of debt settlement solutions to choose from, the next thing you have to figure out is who, if anyone, should you hire to help you?
The truth is that you can negotiate and settle debts directly with your creditors. However a consumer with no experience or knowledge of how creditors operate is at a distinct and likely expensive disadvantage. At minimum I would recommend that a consumer hire someone to coach them through a debt settlement process if they decide to save some money and work directly with their creditors. The money that you would save, just by knowing when to take a deal and when to push for a better offer will be likely much more than you would pay for experienced advice.
For consumers who prefer to hire a third-party debt settlement company, I can say with confidence that most of them will make your financial situation worse. I speak with consumers every day who have lost thousands of dollars in fees only to see no results and have multiple creditor lawsuits staring them in the face.
That being said, there are some good programs out there that properly screen their clients and can deliver on the promised results. The following few tips will help prevent you from falling victim to an unscrupulous debt settlement company.
1. Never, ever, ever, ever, enroll into a debt settlement program that charges their fees before settling your debts. In most cases this is actually illegal and does nothing for you as a consumer except insure that the settlement company is paid, regardless of how they perform.
2. Check with the BBB and look at the company’s ratings and complaint history. Verify how long they have been in business. You are looking for a good track record of at least 5 years and longer is better.
3. Be sure that the company actually negotiates with your creditors and is not simply a sales organization who outsources the actual work to a third-party. You want to speak with and hire a company that will actually be doing the work.
4. If they are a performance based company (charges fees after settlement) ask them how long they have been doing it that way. Most settlement companies made the switch in October of 2010 when a new law was passed forcing them to do so. Look for a company that charged their fees on performance even before regulators required them to do so. This shows that they put their clients above profit even when they weren’t forced to do so.
5. Perform a few Google searches to research the company and check for complaints, state litigation or anything that might be a potential point of concern.
Reader Take Away
A debt settlement strategy can be a very effective way to get out of debt, however the process is not nearly as awesome as most sales people will lead you to believe. Do your own homework on all options available and if you decide to hire a debt settlement company, be sure that they will not charge you upfront and have a long and blemish free history of helping other consumers in similar situations.