What is debt settlement?
Simply put, debt settlement is a restructuring or reorganizing of your debt that helps you pay off what you owe more easily. It involves negotiating to settle your debt for less than the full amount you owe. A debt settlement should lower reduce your debt and make your monthly payments more affordable.
There are a variety of reasons that you may need debt relief. Often it’s due to circumstances beyond your control, such as the loss of a job, a death in the family, or a medical emergency.
Whatever the reasons for your current financial difficulties, a debt settlement can help make your situation more manageable.
Here are a couple of things to consider when looking for a debt settlement company.
Do they have minimum and maximum limits on the amount of debt you can enroll?
Most companies require you to have a minimum amount of debt, which is usually around $10,000. Some lenders, such as Freedom Debt Relief, accept lower amounts. Other companies also have a maximum amount of debt you can enroll, such as $100,000. You will need to find a company with requirements that match your needs.
What accreditations do they have?
There are two main trade associations in the debt relief services industry: the American Fair Credit Council (AFCC) and the International Association of Professional Debt Arbitrators (IAPDA). Members of these organizations must adhere to industry best practices and to the highest levels of operational compliance.
What is their customer service like?
We typically don’t care about the customer service of a company until we run into problems or have questions. It is important to find out ahead of time about the level and quality of support provided by a company. You can do so by researching the support channels they offer (phone, email, live chat, etc.) and by reading reviews from past customers. Look for companies like Debtmerica Relief and Rescue One Financial which are recommended by our community of users. Other debt settlement firms to consider are Pacific Debt and National Debt Relief.
Debt settlement alternatives
In addition to bankruptcy and debt settlement, there are other debt relief programs consider. These include debt consolidation, debt management plans, and balance transfers.
Debt consolidation
Debt consolidation involves combining debt from multiple sources into one loan, resulting in one easy-to-manage payment. Try to get an interest rate that is lower than the average rate of your previous debts. When done right debt consolidation loans can lower your interest payments and help you get out of debt faster. The drawback is that you may not qualify for a debt consolidation loan if your credit is in bad shape.
Balance transfer
If you have credit card debt, a balance transfer can be the fastest and cheapest way to pay it off. A balance transfer involves transferring a balance from one account to another to reduce the interest rate. It is typically a good option if you have a credit card with a high interest rate. You can potentially transfer the balance to a card with a 0% APR promotional period.
Debt management plan
Debt management plans (DMP) are typically created with the help of a credit counseling agency. The agency then presents the plan to creditors and requests lower interest rates and fees. Then, the debtor makes the payment to the agency, which pays the creditors. The plans typically last for four to five years.
Do It Yourself Debt Settlement
Do it yourself debt settlement allows you to negotiate with your lenders on your own behalf. You may be able to:
- Reduce your overall debt
- Save yourself from accruing further penalties and interest fees
- Be debt free sooner than if you made the minimum payment each month
- Avoid filing for bankruptcy
Do it yourself debt settlement isn’t for everyone. However, if you understand financial issues and feel comfortable negotiating with your creditors, it can be a way to get out of debt and save money.
Consumers Have Debt Collection Rights
Before you even start, understand that you have debt collection rights afforded you under the Federal Trade Commission (FTC). Debt collectors must:
- Not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you allow it.
- Not contact you at work if they’re told (orally or in writing) that you’re not allowed to get calls.
- Send you a written notice within five days of first contact to tell you how much money, the name of the creditor to whom you owe the money, and how to proceed if you don’t think you owe the money.
- Not harass, oppress or abuse you or any third parties they contact.
Make sure you know your rights before you proceed. If a creditor violates your rights, you have the right to file a complaint with the FTC. Be sure to know the company name, representative name, company address and phone number, as well as dates, times, and topics of discussion.
Prepare to Make that Call
Before you make any calls to your creditors, have the most recent bill in front of you and follow these ten steps:
- Negotiate a reasonable settlement. Lenders want their money. Naturally, they may refuse to settle, which is their right. However, once the negotiations begin, don’t be afraid to ask for more. Ask them to remove fees and penalties. If they offer three months at no interest, request six. Whatever you do, be honest, upfront, and courteous in all your dealings.
- Make an upfront payment. As a good faith gesture, you may be required to pay at least half of the negotiated amount up front. So know how much you can reasonably afford.
- Keep good records. Track the date, time, and each contact’s name along with the general overview of the conversation.
- Ask to speak to someone in authority. Frequently when you call a lender, you wind up with someone in customer service or collections. They may have limited authority to negotiate. Supervisors are in a better position to negotiate a reasonable payment plan.
- Put it in writing. If you find that even by speaking with a supervisor you cannot reach an agreement, consider putting your specific request in writing to someone in higher authority.
- Get it in writing. Once you and your creditor have agreed to a settlement amount, request a letter of confirmation.
- Clean up your credit report. To maintain your good credit, request that you creditor mark your credit record “paid in full.” They are not required to do so, but it doesn’t hurt to ask.
- Make your payment on time. Once you have negotiated and agreed to a payment plan or lump-sum settlement, hold up your end of the bargain. However, do not feel compelled to offer your personal bank information for an automatic debit. Instead, send a money order.
- Know when you need a lawyer. Because negotiations may not go your way, always have a backup plan. That may mean having access to a lawyer.
- Know when to contact a debt settlement company. In the end, you may realize that going it alone is more difficult than you expected. Find a good debt settlement company to help.
