Are you in debt and wondering how to get out? Well, you can use the help of a debt settlement company.
A debt settlement company works with your creditors to settle your unsecured debt for less than you owe. The company negotiates with your creditors and offers to pay your debt in a lump sum if they accept less than you owe.
Debts covered are personal loans, credit card debt, payday loans, tax debt relief, medical debt, private student debt, and lines of credit depending on the debt settlement company.
What happens is that you contact the debt settlement company for consultation. If your type of debt qualifies for settlement, you sign an agreement with the company. You are required to save a particular amount every month with the settlement company. During this time, you don’t pay the creditors.
Once your savings are enough, the debt settlement company pays off the negotiated debt. When the debt is fully paid, you pay the company between 15 to 25% as its fee.
Choosing The Best Debt Settlement Company
There are many debt settlement companies in the market. However, only some are credible. Suppose you opt to use the service, it is up to you to choose the best. Here are a few things for which to look out.
- Reviews and ratings. How have previous customers rated and reviewed the company? Positive reviews and high ratings are an indication that the company satisfies the needs of its clients. You can use review sites such as Reddit to check the reviews.
- Accreditation. Is the company accredited by Better Business Bureau and America Fair Credit Council?
- Fees. Does it charge fees before or after paying the creditors? A credible debt settlement company charges its fee after the debt is settled, without adding any hidden charges.
- Has additional services. Other than settling debt, a credible company should have additional services such as credit counseling, debt consolidation, financial education, and debt management plans.
You can check out these debt solution companies. They are some of the best in the market since they have great reviews, are accredited, have been long in the market, and provide additional services.
Do you want to use the services of a debt settlement company? Here are its pros and cons to help you make that decision.
Here is why it’s beneficial to use a debt settlement company.
- You will be debt free in a few years. With a debt settlement company, you can pay your debt in a duration of two to four years. That’s good news given that it would have taken you longer to repay the debts.
- You could settle your debt with less than you owe. The debt settlement company negotiates with your creditor so that you can settle your debt with less. You may not achieve the same success if you try to negotiate with the creditors.
- You only make one monthly payment. Once you sign an agreement with the company, you start making monthly savings which will be used to pay your debts. You no longer need to make several payments to your creditors.
- When you pay your debts, you improve your credit score. Also, you learn about saving, which is a great financial habit.
Some of the drawbacks of a debt settlement company include:
- You pay a fee once the debt settlement company clears your debts. This ranges between 15 to 25% of the debt paid. Keep in mind that you wouldn’t pay this amount if you dealt with the creditors yourself.
- Some creditors may not work with the debt settlement companies, so some of your debts may not be covered.
- There is no guarantee of a positive outcome. A creditor may agree or disagree to reduce the amount of the debt payable. That’s why the settlement company cannot guarantee that you will pay less debt. You may still be required to pay a fee for the services even if there is not an agreed upon settlement.
- If you fail to make monthly payments, it affects your credit score which can dive. Fortunately, the score can increase once you pay the debt. Also, non-payment can increase penalties and late payment fees, causing your total debt to increase.
- The settled debts stay on your credit report for up to 7 years.
- You have a poor credit score when you are making payments. It can take years to rebuild the credit score.
As much as there is a downside to using a debt settlement company to settle your debt, there are also benefits. Especially if you have a large unsecured debt, it’s best if you use a debt settlement company to settle it.
You will be debt-free faster, you are likely to pay less, you will be making a single payment even if you have many creditors and you improve your credit score once the debt is paid.