Considerations When Selecting a Debt Settlement Company and Red Flags to Look Out for


If you are faced with a debt problem that is serious, you may be facing bankruptcy. You may be able to avoid it by working with a business debt settlement company. This solution is not considered an easy way out. However, it can get you out of debt and on your way to building your business again without the burden of insurmountable debt.

The debts are negotiated on your behalf by the debt settlement company you choose to work with and can come down by forty to sixty percent. Once you come to an agreement, the terms of the settlement are written down and signed off by both parties. What remains is the implementation. Most creditors prefer a lump sum payment, but you can also make monthly payments as agreed.

The debt settlement company you choose can make or break your deal. Here are some things to consider when selecting a company to work with:

  1. They should have sufficient experience to give a good outcome. If you owe a lot of money to several different creditors, an experienced, expert negotiator will come in handy. Their experience gives them an upper hand in understanding how creditors work, at what point they would be willing to settle and how to ask for monthly payments as opposed to lump sum payments.
  2. They will be tracking all settlements negotiated so that they know which of your debts need to be settled first. They also can identify the best deal and who they need to speak to in order to get you a great deal. The timing is also important, so they know what time in the monthly cycle they are likely to get a low settlement from the said creditor.
  3. If the settlement calls for monthly installments, the professional knows how low they can go on the installments to ensure the creditor accepts the offer. They are also well versed in timelines and can tell how long a creditor will be willing to stretch the monthly installments.
  4. With their experience, they are able to settle all your accounts at the same time as opposed to one at a time, which can take a very long time. This is the power of professional leverage and you should take advantage of it.
  5. If you are working with a good firm, they will develop good rapport with your creditors because they have dealt with various collectors over time and have created solid relationships that they can leverage in your favor.

Up-Front Fees: To Pay or Not to Pay

A legitimate debt settlement firm will not ask you for upfront fees. In fact, it is against federal law to do so, particularly if the firm telemarkets the services it offers. It is best practice to first come to a settlement before charging a fee for the work done. If a company charges you after it has delivered, there is great motivation to ensure that the debts are settled.

Benefits of Debt Settlement

You can be sure that you will have more pros than cons with debt settlement:

  • Getting out of debt is much faster.
  • Debt is significantly reduced.
  • Monthly payments are reduced significantly

You don’t have to worry about filing for bankruptcy when you have company debt help within arm’s reach. Many people are concerned about the negative mark that debt settlement leaves on their credit score and report, but in truth, if you are looking at bankruptcy as your only other option, the damage to your credit is far less. Additionally, bankruptcy is a public record, but debt settlement is not.

Drawbacks to Consider

There are 2 main drawbacks as follows:

  • Your credit score will be negatively affected.
  • The IRS may consider the forgiven debt as income, which means you will owe taxes on the said amount.

Questions to Ask When Hiring a Debt Settlement Company

As you carry out interviews, you need to ask the following questions:

  • How many years have you been in business? This is a great question to ascertain experience. If the company is very young, chances are that they do not have the experience needed to settle your debts to your advantage. It is important to check with the BBB for when they registered their website.
  • Do you do the settlements and customer service yourselves? This is important because some companies have been known to outsource their services. You want the company to do its own negotiating and offer the customer service themselves too.
  • What is your fee structure? A legitimate company will charge you after the work is done and your debt is settled. They will not ask you for retainers or charge you upfront.
  • Are you on a commission? Because they need to close the ‘sale’, a person on a commission may be tempted to leave out crucial information or stretch the truth a bit. Look for representatives that are not desperate to sell you on the deal.
  • Does this mean creditors will stop calling? The truth is that many times the creditors will keep calling, but the company may offer you a device that enables those calls to be redirected to them.
  • Can creditors sue me? Nobody can stop a creditor from suing you. However, a good firm should be willing to keep negotiating a settlement even when this happens.

Red Flags to Look Out For

According to the Federal Trade Commission, there are certain red flags that will alert you to an illegitimate debt settlement company. You should therefore not sign up with a company that does the following:

  • Offers a guarantee on making all the unsecured debts you owe disappear
  • Asks for an upfront fee payment
  • Asks you for personal financial information prior to letting you know the services they offer
  • Advises you not to speak with any of your creditors and does not let you know what the consequences of this are
  • Asks for voluntary contributions
  • Demands that you make payments before a settlement has been agreed on
  • Guarantees no more collection calls
  • Speaks of a government program that is new and helps you get rid of all your credit card debt

Be sure to speak to several different debt relief companies before settling on one. Be thorough in your review of each one before settling. Keeping the red flags in mind will help you escape a variety of pitfalls as well.

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