A whopping 46 percent of Americans say that they would not be able to a cover a $400 emergency without selling something or borrowing money (source). They are treading water financially, just one problem away from going under. Others are already sinking and looking to debt settlement as a potential way out of financial ruin. How does that happen? Consider the case of Joe and Nancy.
Joe and Nancy are a typical American couple. They have been married eleven years and have two girls, aged 8 and 6, and a boy, aged 4. Both Joe and Nancy started working right out of college. For the first two years of their marriage, they were able to put aside some savings, despite the fact that they were both paying off student loan debt at the time.
But then, their children were born and they soon found that their budget was a bit too tight. They stopped putting any savings aside. Figuring that they would find a way sometime in the future to catch up on their savings plan, they were not too worried.
When Financial Disasters Strike
Then, disaster struck. Joe was injured in a car accident. Soon the bills began to pile up. Joe found himself unable to work for several months because of his injuries. Nancy kept working, but her salary was not enough to handle the necessities of life for the family. The couple began to turn to their credit cards to supplement Nancy’s meager salary.
Joe’s injuries are healing. But their finances are not. Joe and Nancy are now over $30,000 in credit card debt. Even worse, since Joe is only able to work part-time right now, the couple cannot make their minimum credit card payment each month. They have missed the payments for three months now, and Nancy is afraid to answer the phone, knowing that a bill collector may be on the line.
They never dreamed they would have to make this kind of decision, but Joe and Nancy have chosen to try debt settlement as a way to get back on track and save their financial future. Now they face another decision. Should they try to negotiate with their credit card companies by themselves, or should they work with a debt settlement company to do so?
Perhaps you or someone you know is in a similar situation. This guide will help you decide whether to handle debt settlement as a DIY project or get help from a professional debt settlement company.
What can you do to settle debt yourself?
You can try to settle your debt on your own if you know enough about financial matters and you have the patience and time to do it yourself. Sometimes, taking a DIY approach will save you money in fees, but you are unlikely to negotiate as good a deal as professional debt relief specialist.
Here’s what you need to know:
- You have rights when it comes to debt collection. For instance, there are limits to when and where a debt collector can call you. A debt collector cannot legally harass you or any third party they may contact about your debt.
- Credit card companies have rights as well. They don’t have to accept a settlement simply because you ask them to do so.
- If you negotiate on your own, make a reasonable offer. Although you should expect some haggling, lowballing your creditors can backfire on you.
- Before making any payment agreed upon, make sure you get the agreement in writing from your creditors. Do not leave this step to chance.
- Get ready for a long and painful negotiation process. Credit card companies are understandably reluctant to lower your payment amount and may not do so the first time you ask.
Under what circumstances might it be better to hire a debt settlement company?
There are a variety of circumstances that may make it best to hire a debt settlement company. For instance, you may decide that you simply cannot handle the stress involved in negotiating. If you do not feel comfortable haggling over dollar amounts, DIY debt settlement is not for you.
You may find it very hard to talk with your creditors about whatever situation landed you in financial hot water. Because you are emotionally attached to the issue, it can be very difficult to maintain calm control when talking with your creditors.
Additionally, you may simply lack the time to negotiate properly. Debt settlement is often a lengthy process that requires an investment of time and energy that you might not be able to give. Some have found it difficult even to find the right person in the creditor’s organization to handle the matter.
Also, because you may owe multiple creditors, you must enter into separate negotiations with each creditor, which can be a lengthy, tedious process.
The truth is that your creditors have abundant reason to make it unpleasant or difficult to get negotiations started in earnest. Here is where a debt settlement company can sometimes work wonders.
How can a debt settlement company help?
Debt settlement companies negotiate with credit card companies every day. It’s what they do. A reputable debt settlement company that has been in business for a while has built up relationships with credit card companies that will work to your advantage. Debt settlement companies know exactly who to call to get the negotiation ball rolling.
Debt settlement companies can approach creditors dispassionately. When emotion is taken out of the equation, you may benefit in terms of getting a lower settlement offer. Because a debt settlement company knows how to craft a settlement proposal that creditors will truly consider, you will be more likely to reach a settlement agreement.
Sometimes a debt settlement company may be able to reduce the number of calls you receive from collections agencies. While no reputable debt settlement company will promise to eliminate all creditor calls, at least some of your creditors may stop calling once the company begins negotiations in your behalf.
When compared to trying to settle your debt on your own with multiple creditors, the main benefits of using a debt settlement company are that your settlement amount will likely be much lower and you will also save significant time and effort.
What should you look for when hiring a debt settlement company?
There are many unscrupulous debt settlement companies that prey on consumers in financial trouble. When looking for a debt settlement company, here are some details to iron out:
- Ask your debt settlement company whether it is fully accredited with the AFCC. Accredited members of this organization are audited annually and must prove that they comply with all FTC guidelines for the industry.
- Ask your debt settlement company if it is licensed to do business in your state.
- A reputable debt settlement company will never request that you pay a fee upfront. The company will also provide you with their service agreement and policies before requesting any personal financial information from you.
- During your consultation, an agent of a reputable company will discuss all your options with you. This includes a clear description of the pros and cons of any solution suggested. You are free to ask questions and request evidence or proof of any claims made by the company.
- Your debt settlement company should provide you with a detailed timeline of when and how your debt will be settled
- The company should ask for your approval before they send a settlement agreement to your creditors.
How much does it cost to hire a debt settlement company?
Some debt settlement companies may charge a flat rate for their services. Typically though, firms base their fees on a percentage of the debt balance. Your debt settlement company may require a certain percentage of the total debt amount you need settled. Or they may require an agreed-upon percentage of the settled amount of the debt.
In any event, your debt settlement company should be transparent in their pricing policy. The company should advise of the way in which it calculates fees before you sign any agreement.
Where can you find a legitimate debt settlement company?
You can find reputable debt settlement companies in a number of ways.
- Get recommendations from family or friends who have used debt settlement companies in the past. A good word-of-mouth referral is priceless.
- Check with the Better Business Bureau. This organization will tell you about any consumer complaints or court cases against the debt settlement company.
- Read reviews from respected sources like SuperMoney.
Remember there is no obligation to hire the services of our debt relief specialist. Invest 15 minutes of your time and find out what options are available. Get a free debt settlement consultation today.