Debt settlement carries its own set of risks. Therefore, an in-depth grasp of the process is essential for successful outcomes.
When you owe a lot of money to a lot of creditors, finding a good debt settlement program is a top priority. Debt settlement companies promise to help you wipe out your debt for some percentage of what you owe. While the prospect of spending a few hundred dollars to eliminate thousands of dollars in debt sounds great, in practice, the debt settlement process is rarely so easy. In fact, the best debt settlement offers you can get may only save you a little money while trashing your credit rating for years to come.
Before you go searching for a reliable debt settlement company, it’s wise to take a good look at debt settlement pros and cons to make sure you are making the right decision.
10 Qualities of a Good Debt Settlement Company
- Experience and Expertise: A good debt settlement company should have a strong track record in the industry, showcasing their ability to successfully negotiate settlements on behalf of their clients. Their expertise in this field is crucial.
- Transparency: They should clearly communicate the potential risks, benefits, and costs associated with the debt settlement process. This includes being upfront about their fees and the potential impact on your credit score.
- Accreditation: The company should have necessary certifications or accreditation from recognized industry associations like the American Fair Credit Council (AFCC) or the International Association of Professional Debt Arbitrators (IAPDA).
- Personalized Approach: Every individual’s debt situation is unique. A good debt settlement company should provide a tailored plan that caters to your specific needs, rather than offering a one-size-fits-all solution.
- Respect for Client Rights: They should strictly adhere to the Federal Trade Commission’s rules regarding debt settlement practices, including respecting your right to privacy and providing a high standard of customer service.
- Positive Customer Reviews: Look for a company with positive testimonials and reviews. This can provide insight into the company’s practices and the experiences of previous clients.
- Financial Counseling: The best debt settlement companies also offer financial counseling services. They educate their clients about managing their finances to prevent future debt accumulation.
- Reasonable Fees: A reputable debt settlement company should charge a fee that’s based on the amount of debt they successfully negotiate, not the initial debt amount.
- Good Communication: They should provide regular updates about the progress of your debt settlement and be easily reachable to answer any questions or concerns.
- No Guarantee Claims: Since debt settlement involves negotiations with creditors, no honest company can guarantee a specific outcome. Companies that make such claims should be avoided.
What is a Good Debt Settlement Outcome?
Here’s how debt settlement works:
- After hiring a debt settlement company, you’ll stop making payments to your creditors and you’ll instead save that money in an account with the debt settlement agency.
- After several months, when your accounts have become quite overdue, the agency will approach your creditors and offer to settle your debt for some portion of what you owe.
So, Is Debt Settlement a Good Idea?
Is debt settlement a good idea? There are many risks to even the best debt settlement program. Your creditors are not required to settle your debt, and if you stop paying your bills they may choose to sue you or send a collections company after you, putting you in even greater financial jeopardy. Even if your best debt settlement offer is accepted, you’ll owe a large fee to the settlement agency and you’ll have to pay taxes on any amount of debt forgiven.
Most importantly, even with a good debt settlement conditions, your credit rating will be severely damaged, and you’ll likely have trouble getting loans, applying for credit cards, renting an apartment or getting a mortgage for many years.
That’s why, when you’re looking to understand the debt settlement process, it’s helpful to speak with a certified financial professional first to explore all the options available to you.
Shape Your Debt Strategy with ACCC Expertise
American Consumer Credit Counseling (ACCC) is a nonprofit organization dedicated to helping consumers like you get out of debt as soon as possible and learn to live debt-free in the future. We offer free credit counseling services where you can speak to an expert in managing debt. After evaluating your financial situation, we’ll help you understand all the strategies available to you for paying down your debt, and assist in finding the best debt settlement, debt consolidation, or debt management program based on your financial objectives. We can answer questions like “How does debt settlement affect my credit?” and “What are the pros and cons of a debt management plan vs debt settlement vs bankruptcy?” And our counselors can direct you to social service referrals and educational materials that can help you learn to manage money more effectively to reach your financial goals.