With so many ways to reduce debts on your own or go through one of many companies offering to settle your debts for you, it is hard to predict what the outcome will be. Most of us are hoping that we can gain some control over a reduced debt burden and get back to a financially solid future, but this isn’t always the case. In fact, dealing with a debt settlement company is often very unpredictable and can leave you in a position that is no better than when you started. However, knowing what to expect ahead of time can prevent you from wasting both time and money on their services.
Companies Promising The Moon
It isn’t uncommon to hear a debt settlement company offer to settle your debts for “pennies on the dollar”. Some even promise to reduce your debts by 50 or more percent of your total amount owed. While both of these sound enticing, they are simply too good to be true. Why?
First, debt settlement agencies must obtain a specific percentage of debt reduction in order to legally charge for their services. Since they operate through credit negotiations, their main job is to obtain an overall reduction in the principal amount owed on the account. This is often very difficult to do and creditors are pretty stubborn about negotiating a reduction in the principal amount owed. If the debt settlement company does not obtain at least a 35 percent reduction in your overall debt, they cannot charge you for their services. Therefore, you may end up walking away without a debt settlement agreement if the company cannot successfully negotiate a 35 percent reduction in your debts.
Another issue of concern is the type of debt you owe. Unsecured debts can generally be negotiated through a debt settlement company, whereas secured debts are far more difficult to negotiate. Since your asset is collateral against the secured debt loan most lenders will not negotiate reduced principal amounts on the debt, but would rather repossess the asset for liquidation. Therefore, if you go into a debt settlement company looking to settle secured debts, you may be highly disappointed to find out they cannot lower your debt burden on your behalf.