For consumers drowning in debt, bankruptcy often seems like the only solution. But bankruptcy represents one of the most negative items on a credit report, and it can take years for your FICO score to recover. Debt settlement also has a negative impact on your credit report, but not as drastic as bankruptcy. And if your debts are relatively small, debt settlement can allow you to obtain significant relief while signaling your willingness to satisfy your financial obligations.
Debt Settlement Firms versus DIY Efforts
For debts totaling less than 7,500 dollars, you might consider attempting to negotiate debt settlement with your creditors on your own. Although many debt settlement firms recommend clients to stop paying their creditors, debt settlement negotiations do not alter credit obligations. Creditors are no more obligated to go along with terms proposed by a debt settlement firm than those proposed by individuals.
However, debt settlement firms have extensive experience in negotiating settlements, along with specialized training and insider business knowledge. Especially if your debts are large, the investment made in securing the services of a debt settlement firm will often be exceeded by the savings that the firm is able to obtain on your behalf.
What to Look For
If you’ve decided that obtaining the services of a debt settlement company could be worthwhile, the next step is to choose the right one. While your specific circumstances are undoubtedly unique, there are still common features to look for to ensure that the debt settlement company you select is reputable.
First and foremost, thanks to a 2010 Federal Trade Commission law, debt collection agencies are prohibited from charging upfront settlement fees. Run; don’t walk in the opposite direction of any so-called debt settlement company that attempts to do so. Monthly maintenance fees are fine, but performance-based fees are far preferable, because you pay nothing if the firm does not succeed in lowering your overall debt. The settlement amount may be based on a percentage of the enrolled debt or a percentage of the (smaller) settled debt. Naturally the latter is preferable.
Proceed with caution if a debt settlement firm promises to close your case in a year or less. Two to four years is customary, especially if you have large debts. Support via email, telephone or live chat is a must. A dedicated personal advisor or arbitrator is a plus, as is accreditation with an agency such as the International Association of Professional Debt Arbitrators (IAPDA) or the American Fair Credit Council (AFCC).