If issues like these have created a situation in which you’ve fallen behind on your payments—or even missed a few—you’re now looking at even higher interest rates and astronomical fees. Both will serve to make the debt load even heavier.
In these cases, it might be wise to ask, is debt settlement right for me? To figure this out, ask the following questions of every debt relief professional with whom you speak.
How Does This Work?
Debt settlement companies negotiate with lenders on your behalf to get a portion of your debt forgiven in exchange for payment of the agreed-upon settlement amount. Instead of continuing to pay your creditors monthly, you’ll make deposits into a third-party held FDIC-insured escrow account from which the funds will be drawn to service these agreements.
Can This Eliminate All My Debt?
Debt settlement works on credit card debt, personal loans, medical bills and other unsecured obligations. It can also be used to reduce some private student loans. However, mortgages, car loans and public student loans are not negotiable in this fashion.
Is This Going to Hurt My Credit?
If you’re in need of debt relief, your credit score has already been impacted. And yes, it will be impacted a bit more because you’ll stop paying your debtors altogether while the money accrues in the account to fund your settlement agreements.
Are There Any Tax Implications?
The IRS considers forgiven debt as a form of income, and may well expect you to pay taxes on the amount of debt your creditors agree to forego.
How Much Can I Expect to Save?
In a lot of cases, negotiators can get lenders to agree to waive interest and fees, as well as a portion of the principal amount. It’s not unheard of for these to total between 15 percent and 35 percent of the outstanding balances.
How Long Will This Take?
The exact amount of time varies depending upon the amount of debt you’re carrying and your ability to build up the settlement fund. In most cases, it takes between 24 and 48 months for the program to run its course.
What Will This Cost Me?
Fees vary from company to company, but typically average around 21.5 percent of the settlement amount.
Do I Need to Pay For the Service Up Front?
Federal law prohibits settlement companies from accepting payment for negotiating on your behalf until an agreement is reached and approved by you.
Why Would Creditors Agree to Accept Less Than I Owe?
Experienced lenders know if they’re hearing from a reputable debt settlement company, your financial situation has been evaluated and determined to be serious. This means your next option will likely be bankruptcy, in which case they could get nothing at all. Garnering a partial payment on their terms is better than taking a chance on what they might get in a bankruptcy court’s ruling.
If you’re shopping for a debt settlement company and you hear answers varying from those above, you could be dealing with an inexperienced firm, or worse—an illegitimate one. You have to be careful, as there is a lot of disinformation out there, such as that surrounding the alleged Freedom Debt Relief scam; despite the companies many years of quality service.
In addition to solid answers to all of the above, you want a company with at least 10 years of experience, accreditations by organizations such as the American Fair Credit Council and an A+ Better Business Bureau Rating.
If you’re asking, “Is debt settlement right for me?” it could be the solution you need. But before deciding, you should take your time and evaluate your situation carefully to be certain.