When someone’s drowning in debt, the promise of a “quick fix” can really be tempting and that’s exactly how scam debt settlement companies lure their customers. Often these companies claim that they can slash your debt by half and make other false claims that appear very tempting at first but they can cause you much more damage in the long run. It’s not that all debt settlement companies are waiting to rip you off your money, in fact, there are multiple accredited companies out there like Mountains Debt Relief that can genuinely help you in your time of need. Our company doesn’t make any unrealistic claims, in fact, we believe in keeping everything transparent so that our customers know what they are getting into.
For someone who’s dealing with a debt settlement negotiation for the first time, it really can be difficult to identify who to trust and who not to trust. Today we are going to tell you about how legitimate companies work, what their process is, the possible risks involved and what red flags should you watch out for.
What Is A Debt Settlement?
In a debt settlement, a third party negotiates with your creditors on your behalf to reduce your debt mostly in exchange for a lump sum payment. This strategy works best when you are dealing with unsecured debt and are already very much behind your payments.
The process involves;
- You stop making payments to your creditor
- You make monthly deposits into another separate account
- Once you’ve saved up enough to offer as a lump sum, your settlement company will then negotiate with your creditor
- If the negotiation is successful, you pay the lump sum as per the agreement and your debt is then marked as “settled”.
Are Debt Settlement Companies Legitimate?
Yes, debt settlement companies are very much legitimate and they do work within the law. However, unfortunately the industry is also rife with several disreputable and scam businesses who simply want to take advantage of their vulnerable customers. In order to protect yourself, it’s important that you first do your homework and ensure that you are dealing with an authentic company before you sign any agreement.
Here are some signs of a legitimate debt settlement company;
- They are very transparent when it comes to their communication with their customers.
- They don’t make any unrealistic and too good to be true promises
- They are affiliated and accredited with reputable financial organizations
- They comply with the FDCPA rules
- They don’t ask for any upfront service fee
The Downside Of Debt Settlement
Debt settlement is no less than a new lifeline for someone struggling financially. However, there are both pros and cons to such financial strategies and the same is the case with debt settlements. Here are some downsides to the process that you should know about;
Impact On Your Credit Score: Since you’ll stop making payments to your creditor, debt settlement will give a significant hit to your credit score
No Guarantees: Whether you go for DIY debt settlement or hire a third party, there’s no guarantee whether your creditor will agree to your offer or not. Creditor’s aren’t obliged to accept any settlement offers.
Fees: After successfully negotiating your debt with your creditor, the company you hired will most probably charge you between 15% to 25% of your total enrolled debt.
Tax Implications: If your creditor has forgiven more than $600 of your debt then the IRS considers it as taxable income and you’ll have to pay the tax accordingly.
How To Identify A Legitimate Debt Settlement Company
Want to ensure that you are dealing with a reputable provider? Here are some tips that can come in handy to you;
1-Always Check For Accreditation
The very first thing you should do is to check for the accreditation of the settlement company you are hiring. It should be accredited with organizations like The International Association of Professional Debt Arbitrators (IAPDA) or the The American Fair Credit Council (AFCC). Both of them are ethical groups and only legitimate companies can work under them.
2-Always Read The Reviews And Complaints
Before finalizing any company, you should first read their online reviews and check if someone has filed a complaint against them. You should search the company on Trustpilot, Better Business Bureau or simply head to Google reviews. If you see any such complaints like false promises, unauthorized withdrawals or lack of transparency in communication then you must not hire the company.
3-Get Everything In Writing
An authentic settlement company will always provide you all the details of the deal in writing in the form of a detailed contract. The contract must include all the information about the fees, the service being offered, the expected timeline and most importantly, the cancellation policy. If a company is refusing to provide you with any documentation or is pressurizing you to sign up quickly then it’s definitely a red flag that you shouldn’t ignore.
4- Don’t Ignore The Red Flags
Be very cautious if the company is making any “too good to be true” claims like eliminating your debt entirely or guaranteeing you any results. Most importantly, never trust a company that asks for any fee upfront. As per the FTC laws, an authentic settlement company can only charge you when the debt has been settled or resolved with your creditor.
5-Stay Informed
Hiring a third party debt settlement company doesn’t mean that you should be out of the equation completely. You should still stay in touch with your creditor, you should demand complete information from the company about their proceedings regarding your case and you should stay informed about each and every one of their steps. Some companies use deceptive practices in settling debts which can be troubling for you in the long run and it can even lead you to a lawsuit. In a nutshell, you should know everything about what’s happening between the company you’ve hired and your creditors.
Reasons Why You Should Consider Hiring A Debt Settlement Company
You probably now know all the red flags of a scam debt settlement company. As said earlier, there are some legit ones too who really are dedicated to providing you debt relief. Here are some compelling reasons that explain why you must involve a debt settlement company when going through such a tiring and exhausting procedure;
1-Professional Negotiation Expertise
Negotiating a settlement isn’t everyone’s cup of tea. Especially if you feel like you are a little weak in this regard then it’s best that you use a third party debt settlement service in order to resolve your unpaid debt faster. These companies have just the right experience and expertise that you need to win your case. Moreover, they understand how creditors operate, they know the best timing and the best strategy to propose your settlement and they have access to insider knowledge when it comes to settlements and their ranges.
2-It’ll Help You Avoid Bankruptcy
Bankruptcy should be your last resort because it’ll cause much more damage to your credit and to your finances. Most importantly, debt settlement comes with less stigma as compared to filing for bankruptcy and here hiring a professional company can really come in handy to you. These companies increase your chances of a successful debt settlement helping you avoid bankruptcy.
3-Emotional Relief And Stress Reduction
As said earlier, debt settlement isn’t an easy task and it comes with a lot of emotional trauma. On top of that, it’s a stressful process and someone who’s already going through a financial crisis really can’t afford any more stress. Hiring a professional and authentic debt settlement company here can help you stay away from all the drama involved. The company will handle everything for you including the collection calls and the negotiations with your creditor.
FAQs
Q1. How Long Does The Debt Settlement Process Take?
The settlement programs take around 2 to 4 years to complete. It mainly depends on the total amount of debt you owe and how much you’ve saved to pay as a lump sum for the settlement.
Q2.Are There Any Upfront Fees?
No, as per the Federal Trade Commission, no debt settlement company can charge any upfront fee to their customers. They only get the fees once the debt has been settled or resolved. If any company is demanding a small fee before beginning the negotiations then it’s a red flag and you shouldn’t be working with them.
Q3.What Happens If Creditors Don’t Agree To Settle?
Creditor’s aren’t legally obliged to accept any settlement offers. If a creditor refuses your offer, he may pursue collection efforts or charge you interests. The company you hire is supposed to guide you through the steps properly.