3 Ways To Choose The Best Debt Relief Company

If you have a lot of credit card and other debt, you may be thinking about debt settlement to solve your problems.

Debt settlement is a company’s service to negotiate with your creditors, reduce the amount of debt you owe, change the interest rate, or the payment timeframe.

You still have to pay off at least half of your debt, but you will get some relief from the pressure. Debt settlement conditions vary according to individual financial situations.

What Is Debt Settlement?

Also called debt relief or debt adjustment, these companies will contact your creditors representing you to reduce your debt or negotiate a better payment plan.

If feasible, they will recommend a lump sum payment that you accumulate in a designated savings account. You may also be asked to stop paying your bills until a settlement is reached.

You can get many levels of help, starting with changing the terms of at least one creditor to substantially reducing the amount you have to pay.

Your debt settlement is successful if you don’t have to pay the full amount of your debt at the end. Before starting, it’s essential to understand the debt settlement pros and cons.

The Benefits of Debt Settlement

The first benefit you should notice is your creditors and collection agencies are off your back.

Some collection agencies can harass you and even call you at work. This will stop once you have taken steps to clear your debts.

The second benefit is to help you avoid filing for bankruptcy. If you choose bankruptcy, it will stay on your credit report for up to 10 years.

It will make it very difficult to get any kind of credit during that time. You file for bankruptcy in court, and it may result in canceling all of your debt, but this could significantly reduce your standard of living.

The third benefit of debt settlement is to lower the amount of debt you have to pay.

This is a significant benefit, but there is no one-size-fits-all amount your debt will be reduced. It depends on your overall financial situation.

The Cons of Debt Settlement

You can avoid these cons if you are aware of your financial situation and understand the risks.

If you stop paying your bills before a settlement is made, you could be responsible for paying those bills later. Make sure you have a settlement before you stop making payments.

The consequences of stopping payments before a settlement is reached could put you in more debt.

You will have to pay late fees and possibly interest, and a creditor or collection agency could decide to file a lawsuit against you. At this point, collection agencies can get very aggressive.

Some creditors will not negotiate with debt settlement companies. Even if they do negotiate, there is no guarantee a mutually beneficial settlement will be reached.

You will have to pay income tax on the part of the forgiven debt because it is considered taxable income by the IRS.

The interest rates you are paying on your credit cards and loans need to be carefully considered as the amount of tax you have to pay could be inconsequential compared to the amount you save through debt relief.

You will not be charged an upfront fee, but you will be charged a fee for the debt negotiation and repayment plan service.

Once the plan is finalized, you will have to pay a fee for the service according to the relief you get.

You will also have to make a first installment payment and payment to any creditor that refused to negotiate.

A debt settlement company with an A+ rating from the Better Business Bureau (BBB) will not put you deeper in debt.

You will be charged a fee only after you have agreed to a settlement plan. You could take on the task of negotiating your debt reduction yourself, but you have a much better chance of success if you let a professional do it.

Debt settlement is not without risks, but you can minimize or eliminate those risks if you analyze your finances with a debt counselor.

Some plans may take three to five years to complete, but it will reduce your monthly stress and should lower your debt.

Author
Recent Posts

Emma

A mother and lover of all things practical. My blog covers about motherhood by exploring all areas of life. Our tips and tricks help the large community to do more in less time so they can spend time enjoying happy, healthy families.