Many people are thinking about using a debt settlement company to help them dig their way out of debt, but they are unsure of whether it is the best solution for their needs. Many questions may arise - such as: Are these companies legit? How does this work? How much is this going to cost me? How long does this take?
This article is here to make the answers to these questions very easy to understand. It is important to remember that these are general answers. In general these steps are meant to put you in a position where you can better analyze the credit card settlement process and every individual debt settlement company. Specifics may vary - but the general form of each debt settlement company will be similar to what is presented here.
Understand How Credit Card Settlement Companies Work -Step 1 - General Idea
Debt Settlement companies negotiate your debts directly with the creditor or collections agency that you owe. The idea is to settle your debt for 5%-50% of the original balance - saving you money and time. Savings can be up to tens of thousands of dollars and 10 or more years off paying back debt.
Understand How Credit Card Settlement Companies Work -Step 2 - Length Of The Process
The term of a debt settlement plan will usually last 12 -60 months. Usually there is no prepayment penalty - meaning you can send in extra funds to pay the account down more quickly if you like. Once all your creditors are paid - you are done. You do not have to simply make payments for the rest of the original term.
Understand How Credit Card Settlement Companies Work -Step 3 - Charges
Charges for a debt settlement account will usually include:
a. A monthly maintenance fee for your escrow account - usually $20-$50 monthly
b. A start-up fee (some do not charge this) $100-$400 OR 1-2 payments (depending on the company and salesperson)
c. You will be charged:
EITHER
A flat percentage of your total enrolled debt - usually 15%. At 15% - you would be charged $1500 on every $10,000 you enroll. When you are charged based on enrolled debt amount - you are charged REGARDLESS if any settlements are ever reached. This is NOT a good way to be charged because the company makes money whether they help you or not.
OR
A percentage of the amount saved. In this case you are only charged AFTER a settlement is reached. The more you save - the greater the both you and the debt settlement company benefit. This gives the company an incentive to save you the MOST possible. This is the BEST fee structure.
Understand How Credit Card Settlement Companies Work -Step 4 - Settlement Agreements
When working with a settlement company your debts are paid to the creditor once an agreement (settlement) with your creditors is reached. Agreements may be paid in a lump sum or over a period of months. It may take several months or several years for an agreement to be reached - depending on how aggressive the settlement company, how cooperative the creditor/collections agency, and how much money is available in escrow. This is why is it VERY IMPORTANT to work with an aggressive and reputable Debt Settlement Company.
Understand How Credit Card Settlement Companies Work -Step 5 - Creditor Calls
Creditors may continue to call. Once again - working with at reputable company is very important because they will have a better relationship with creditors and may be better at making those annoying calls stop. Telling collectors that you are working with a debt reduction company will not always stop the harassing calls. Creditors still have a right to continue calling and they will usually do their best to get a payment in the door. However, they cannot legally call you at work once you have notified them that calling at your workplace is inappropriate. Choosing the right debt settlement company and program is the BEST way to STOP creditor calls
Understand How Credit Card Settlement Companies Work -Step 6 - Getting Sued
Your creditors/collections agencies may sue. Some settlement companies are very effective at handling and even stopping such lawsuits. This is the #1 reason not to go it alone. Most people need the help of seasoned professionals when creditors threaten court action.
It is highly recommended that you speak directly with a debt settlement company and get a feeling for them. Choosing the right company could be the decision that helps you become debt free, and help you return to the good credit you deserve.