How do I Know When I Need a Debt Settlement Company?ReviewAdvice

How do I Know When I Need a Debt Settlement Company?

Have you tried to increase your income? Have you tried to reduce your expenses? Have you considered a loan consolidation program? If you've done all these things and you're still floundering, debt settlement or bankruptcy is right for you. Let's proceed.

Debt Settlement Companies vs. Bankruptcy

If you're having an extremely hard time paying off your creditors you really have two options: debt settlement or bankruptcy. They both have pros and cons. Let's first look at settling.

Debt settlement protects your reputation. Debt settlement is not a matter of public record like bankruptcy. Although, debt settlement will severely impact your credit score. Reason being, the debt is reported as "settled for less than agreed" or "settlement accepted". This will damage your credit report for seven years. Your lowered payments will continue to be reported as settlement money until the debt is fully repaid. Your credit score will get lower and lower until the debt is eliminated.

Another downside is that when settling debt, you're exposed to many scams and outrageous fees. Debt settlement companies can scam you and even lawyers may not protect your best interests. Most people find the process miserable.

Bankruptcy is slower than debt settlement. But both take approximately three months. Except for chapter 13 bankruptcy which takes between 3-5 years for debt discharge. Bankruptcy generally causes more damage to your credit score as well. Bankruptcy isn't free, although you might think it would be. The average fee for a Chapter 7 bankruptcy is between $500-$1,500. The fee for a Chapter 13 bankruptcy is $2,000 to $3,500. Finding a good debt settlement company is generally preferred to filing bankruptcy.

How do I Know When I Need a Debt Settlement Company?

Debt Settlement for Credit Card Debt and Other Types of Debt

Before reading any further, understand that settling credit card debt is complicated. If you don't really feel like you need to settle… don't! Otherwise, continue reading.

What makes debt settlement complicated is that you have two choices: do it yourself or expose yourself to high fees from lawyers or debt settlement companies. Let's explore doing it yourself first.

When doing it yourself, research is paramount! You need to know how negotiations work. You must also figure out what you can reasonably afford. You need to learn what a bank can and cannot threaten during negotiations. You also need to get tough so you're not pressured into an unsavory deal. Finally, you need to make a plan of attack. You must plan your ideal (within reason) settlement deal. Make sure to also get the agreement in writing. If it isn't written down, it didn't happen!

Credit card debt settlement is the most popular type of consumer debt to settle. The good news is there's the most information available about this kind of debt settlement. Information is available.

Dealing with Debt Settlement Companies or Lawyers

Going with a lawyer or debt settlement company may make sense. You'll get help with negotiations and figuring out what you can reasonably afford. There's also emotional support which shouldn't be overlooked. However, you do expose yourself to risk. Lawyers and companies have been recorded by the Federal Trade Commission for some unsavory practices including:

  • Failing to properly disclose contractual terms with client

  • Charging fees of around 30% of what's owed before the work even begins

  • Embezzling customer payments instead of sending them to the creditors

  • Promising unrealistic results

If you enjoy planning, negotiating, and organization, you can do your own credit card debt settlement (or any type of settlement, for that matter). If not, seek out reputable companies and lawyers. There are good people out there willing to help.

How to Proceed...

Call the Association of Independent Consumer Credit Counseling Agencies (AICCCA) or the National Foundation of Credit Counseling. An advisor can give you information for your specific situation. But as noted earlier, strongly consider debt consolidation instead of settling! Those companies can get you more manageable payments without charging ridiculous fees and harming your credit score. Click the link for reviews of many outstand loan consolidation companies. Good luck. You'll be on stable ground soon.

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