Debt settlement is one of the smartest ways to reduce your debt and the burden with which it comes. People who opt for this financial strategy are often in a state of financial distress and as they are in dire need of help, they fall victim to overly expensive debt settlement companies easily. Most companies charge around 15% to 25% of the total amount of your debt which negates the benefit of the settlement and leaves you dry. The good news however is that there are some smart tactics you can use to avoid the high costs and save yourself some money.
Today, we are going to talk about all such strategies that you can use to avoid the hefty fees of settlement companies. Not only this but we’ll also talk about some major red flags of these companies, the alternative solutions you have and the effective steps you can take for complete financial freedom.
Understanding How The Debt Settlement Fees Works
Before you sign up with a debt settlement company, it’s crucial to first understand how they charge their customers for their services. Always remember that a legitimate company won’t ever charge you any fee upfront. They’ll only charge once the debt has successfully been settled with your creditors. Moreover, an authentic settlement company will always keep their fee structure transparent. There won’t be any hidden charges that you have to worry about. Most companies out there charge around 15% to 25% of the total debt you owe or your total savings. You just have to be careful about the companies that charge any upfront fee because legally they aren’t allowed to do so.
Step By Step Guide On How To Save Money When Hiring A Debt Settlement Company
1-Compare Multiple Companies Before Finalizing One
Even though you are in a rush to get rid of your debt, you should never go with the first company you find. Choosing the right debt settlement company that charges a reasonable fee isn’t something you should rush into. Take your time, do your research, compare with other companies and of course do a fee comparison as well. It’s best to get quotes from at least three of the most reputable companies you find. Once shortlisted, you should then ask them about their fee structure in detail, the monthly services charges and the administration fees as well.
The best way to compare debt settlement companies is to use platforms like CFPB (Consumer Financial Protection Bureau) or BBB (Better Business Bureau). You can read online reviews of different customers to get a more detailed opinion about each one of the companies you’ve shortlisted. Comparison is important to get a better idea of the standard rate going around in the market. Moreover, you can even use one company’s fees to negotiate lower fees with the other company.
2-Don’t Overlook Red Flags
If a company is charging you “extra” or is “costly”, it doesn’t mean that they will bring you guaranteed outcomes. Debt settlement is never guaranteed until you and your creditor sign a proper settlement contract. Understand that not all debt settlement companies are reputable and not all are worth your time and money. Luckily, there are multiple signs that can easily help you identify a scam or a fraudulent company. Starting with;
- Asks for upfront fees (which as per the FTC is illegal)
- Uses aggressive sales tactics
- Makes unreasonable and “too good to be true” claims
- Lacks accreditation and doesn’t have a license to operate
- Guarantees to eliminate your debt
If you see any one of these red flags in a debt settlement company, it’s best not to hire them.
3-Always Try To Negotiate The Fees
Just like any other service provider, you can always negotiate the fees with a debt settlement company too. There are companies who are willing to offer some leniency to their customers. You just need to know the right tactics to reduce the fee and save yourself some money.
- Ask the company to bring their percentage fee down
- Request them to waive off their administration fee
- In case of larger debt amounts, ask the company to offer a flat fee instead of a percentage based one (this will be a much cheaper option for you)
When negotiating the fee with the settlement company, highlight the other competing offers you’ve received and ask them if they can match the offer or beat it. At the end of the day, negotiation is an art. You just have to convince the other party that you are getting better offers from other companies so if they want to work on your project, they’ll have to lower their fees.
4-Opt For DIY Debt Settlement
If you are good at negotiations and if you are confident about your settlement offer then save your money and opt for DIY debt settlement. You won’t have to pay any fee to any third party for it. Here’s what you have to do;
- Contact your creditor
- Explain him your financial situation in detail
- Offer a lump sum payment or a payoff amount that’s less than what you originally owe
- Get your agreement in writing and pay the decided amount
DIY debt settlement is a great option but you need a lot of patience for it. It’s a one bumpy road and if you manage to make it to the end, you sure will be successful. Remember that every creditor will reject your initial offer so always start low. You can then work out on the offer and find a middle ground which is acceptable for both you and your creditor.
5-Know Your Legal Rights
There are both federal and state laws to help protect people from abusive and deceptive practices. For example, as per the Telemarketing Sales Rule (TSR), no debt settlement company is allowed to charge any upfront fee. They can only charge once the debt has been settled with the creditor. On the other hand, there’s the Fair Debt Collection Practices Act (FDCPA) that’ll protect you from harassment from collection agents. In fact, you have the legal right to file a complaint against the company that’s charging you unreasonable fees. For this, you can try reporting to your state’s attorney general, the CFPB or the FTC.
Is DIY Debt Settlement A Good Option To Avoid High Settlement Fees?
DIY debt settlement is a good option if you are really short on money and can’t even afford to pay a reasonable fee to a settlement company. However, it comes with its own pros and cons. For example, in DIY debt settlement you do save money but you’ll have to face the wind all alone. Debt settlement is all about negotiation and you have to use a very professional approach in such a critical situation. If you feel like you can handle the process alone and you can convince your creditor then yes, you should definitely go for it.
However, if you are already stressed out and don’t really know how to initiate the negotiations, save for the lump sum payment or how to handle the collection agents then investing in a reliable debt settlement company is the wiser solution. Companies like Mountains Debt Relief provide professional and reliable services that won’t cost you an arm and a leg. With us, you don’t have to break a bank to get rid of your debt obligations. We will ensure a smooth and seamless journey so that you can regain control of your financial life without any hassle.
FAQs
Q1. Can You Switch Companies If You Are Being Charged “Too Much”?
Yes you can switch companies if you feel like you are being charged a lot. However, you should first review the details of your contract and ensure that there’s no such thing as a cancellation fee or an administrative fee. Before making such a move, make sure that you aren’t violating any terms of the agreement.
Q2. How Do I Know If A Debt Settlement Company Is Legitimate Or Not?
It’s very easy to tell if a company is legitimate or not. You just have to read online reviews on platforms like Yelp and BBB. Ensure that they aren’t charging any upfront fee, ask for the physical address of the company, visit them and ask questions. With all these steps, you can find a reliable company.
Q3. Will Debt Settlement Affect My Credit Report?
Yes, debt settlement will bring down your credit score and it’ll also show on your credit report for 7 years. However, you can take certain measures to improve your credit score after the settlement. For example, you can apply for a secured credit card, pay your bills on time, keep your credit utilization ratio low and don’t take any further loans until your credit improves!