You may have heard advertisements for companies that can settle your debt for “pennies on the dollar”. Others claim they can eliminate all of your debt without consequence. Needing financial help is a matter you don’t want to handle lightly. With so many different debt settlement companies out there, there are a few things you should know in order to choose the best one.
What’s The Big Deal?
The biggest selling point with some debt settlement companies is that they will “handle” creditors when they begin to call and send notices of past due payment. To some extent that is true, the company will field the harassing calls and junk mail that is normally sent to the borrower. This is usually done by having the client forward calls and correspondence to the company instead. Another advantage is that the company will get a good deal with the creditors because they deal with all the major creditors daily. Individuals may not be as successful in obtaining a debt settlement if they attempt to negotiate with their creditors alone.
How They Get Paid
Companies that specialize in debt settlement generally work in similar ways. Typically, the company will charge a prospective client a percentage of the debt that they owe. For example, if a borrower owed $10,000 and the company charged 1% then the client with the debt would pay $1,000 for doing the settlement. More often than not, the fee is static regardless of how much the debt is reduced. In some cases the client will end up paying more then they originally owed after the fees are paid to the settlement company. A reputable debt negotiation company will offer flexible payment terms and work with you resolve your debts at a price you can afford.
Proceed With Caution
Often, companies that consumers should be wary of are the ones that advise the client to stop making payments to the creditor and instead place the payment money into a separate account. The companies advise this so that once the client has accumulated enough money to make an offer; the company will send a letter to the creditor offering to settle for that much. For example, if the client has stopped making credit card payments and accumulated $3,000 in a separate account, then the company will offer to settle for $3,000.