If you are deep in debt with no way to pay back your creditors, your credit counselor or personal financial manager will advise you to take up a debt settlement option. This is an effective debt reduction option that reduces your burden on debt significantly. However, to get the debt reduction, your creditor must agree to the proposed amount which is lower than what you owe them.
To get the debt settlement plan or even before sending your application, you must ensure that your debt is unsecured, e.g. credit card debt. Your other option is filing for bankruptcy, and you should have evidence of being financially constrained.
You can get a reduction by going through a debt settlement company, a debt settlement lawyer, or by taking it upon yourself to negotiate for lower amounts.
Despite there being three ways to a debt settlement plan, debt settlement companies come highly recommended. They are very experienced and they will help in negotiating better deals. Even though they charge high fees, they are your best option if you are meek and reactive. These two qualities will not work when negotiating with creditors.
So, how do you choose the best debt settlement company?
Even though there are several trustworthy debt settlement companies around, you’ll still come across a few rogue companies out to fleece you of the little amount left over. Here is your guide to picking the best debt settlement company:
- Check the accreditation and legitimacyUnderstandably, things can get real bad and you may not have time to go through twenty companies. However, this isn’t enough reason for you to skip on the most important aspect of due diligence. Check out the company’s accreditation details and status. The best companies have accreditation from the International Association of Professional Debt Arbitrators (IAPDA), the American Fair Credit Council (AFCC), and the Better Business Bureau (BBB).
- Transparency about feesThere are companies that aren’t forthcoming with information about their fees. The Federal Trade Commission issued ‘The Final Rule for debt relief Companies’ to prevent debt settlement companies for quoting incorrect figures.
- Unscrupulous businesses that don’t mention the IRS factor in their adverts were put on notice. It could be shocking for you to get a pending amount in your taxes. This is because debt reduction is an income and the IRS will come for their cut. It is the debt settlement company’s responsibility to mention this figure.
- The company must also highlight the effects of debt reduction on your credit score. Settlement plans typically take between 60 and 100 points off your credit score rating and categorize you as a high-risk borrower.
- Finally, on fees, the best debt settlement company clearly lays out its terms on late fees and prepayment fees (if any). By giving you all this information beforehand, the company protects you from expensive surprises.
With that said, you should pick a company that offers low fees and no hidden or associated transaction fees.
- It’s been aroundDo you want a company that will give you the best deals and guides you well through your debt issues? Get an experienced company. Companies that are old are reputable and offer quality services. Such businesses run their operations and follow good industry practices. Therefore, they are not likely to engage in shady business
- The company’s policy on lowest minimum debtEven though most companies work with a minimum of 10K, the best companies are willing to take you up even when your debt is less than their minimum. The company should also accept to arrange for debt settlement plans for different kinds of debts.
- Clear and comprehensive informationThe first place to look up a company, even after getting their name from social media or debt settlement reviews, would be the company’s website. The best companies understand this and therefore have comprehensive but understandable instructions and details on the web.
Look through the debt settlement process highlighted. The best sites have a list of their services, fees, and calculators to help you make an informed decision. If you need more information, take a look at the company’s FAQ section.
- LocalityStates regulate debt settlement companies. You may find a great company only to realize that their services don’t cover your state. Before signing up, ensure that the company serves your state and it is approved to do so
- How much will you save?Debt settlement plans lower your credit rating score. The plans also come with a tax implication because the creditor reports the debt reduction as an expense. This is recorded as an income on your end. So, with the fees and the tax liability, will you save anything from your debt settlement plan? With a good debt settlement company, you should save some money.
As a rule of the thumb, opt out of expensive plans and seek alternative companies.
- Advice on debt control and spendingThe best companies always offer advice on avoiding similar pitfalls in future. Though the settlement provides a way for the company to make extra money, the best companies look beyond their accounts and go out of their way to offer personal and business management solutions.
- Professionalism and customer supportThat is your first impression of a company? How was the phone or email conversation? The best companies value their clients and you’ll feel comfortable with them, regardless of your troubling financial mess.
But, with all these features of great companies, there could be gray areas. How do you avoid falling for scams?
Go to the online reviews on the website and look out for complaints on Yelp. This is the only way you’ll know if a company is legit. Only work with licensed and accredited companies.
- Avoid aggressive sales agents
You are the one to initiate contact, on your terms. Don’t fall for the aggressive sales pitches promising to challenge your debt. You’ll fall into deeper trouble. At the same time, don’t sign up with a company that asks for fees upfront.
- There is no guarantee
No one can guarantee the outcome of the settlement negotiations once you make the full sum to the dedicated kitty set up by the debt settlement company.
The best companies will divulge details of their fees, penalties, and holding funds. Read the fine print and ensure that you have all the details of the plan and that it’s agreeable.
Even when you are very desperate, just remember that things suck already and waiting one more day or a few hours to get the best companies will not make things worse. The wait or delay may lead you to the best company that will save you more money than you thought you could save.
Maria Calderon is a personal finance consultant and works with a renowned financial institution. To learn more about debt settlement, check out her LinkedIn page where you’ll also read about debt settlement reviews for the best companies.