Debt settlement company

What a borrower doesn’t know can hurt them. TV ad slots are filled with advertisements for debt settlement companies claiming to be able to help borrowers’ get out of a financial hole. They operate by negotiating on the borrowers’ behalf, reducing the debt with an agreement for regular payments. On the surface this sounds like a great idea and for some people it can be. What the borrower might not know is how these companies can hurt them.

Credit reports will show debt settlements and it will lower the borrowers’ FICO scores. This in turn affects insurance premiums and possible jobs as potential employers often use credit reports to make character judgments. Debt settlements also leave open the opportunity for lawsuits as long as the debt remains unpaid. Debt settlement companies take payments from the borrowers’ but the amount remains too small to be able to negotiate a settlement until several months later.

There can also be problem with taxes. Borrowers’ whose debts are worked out through debt settlement companies instead of through the bankruptcy system have to report the canceled portion of their debt as taxable income. This creates more hoops for a borrower to jump through to be able to get clear from their debt.

When deciding to take the step to use debt settlement companies it is important to take a good look at all the companies. Ask about these common problems that can arise and see if the companies have well thought through answers to them. A borrower can also turn to trade associations to help guide them, such as The Association of Settlement Companies (TASC). The TASC has information on their website concerning the debt settlement industry and is a good place to turn to for a borrower in a sticky situation.

By: Hector Milla

A debt settlement company works towards negotiating the amount of debt with creditors. These companies devise a monthly savings plan, based on the total amount of debt a borrower has. When a borrower saves enough money to fully settle the debt, he or she can write a check to clear the debt. In addition to their service charges, debt settlement companies charge an initial administration fee to set up a borrower’s account. Different debt settlement companies have various sets of standards, and their service fee depends on the total amount of debt a borrower has. Settlement of debt refers to relieving a borrower’s debt, for a minimum possible amount, in the shortest possible time, without filing for bankruptcy.

A debt settlement program actually reduces the total amount of loan to a manageable size. Hence, borrowers need to understand the following points regarding debt settlement: -

- Good debt settlement companies negotiate with creditors to bring down the loan repayment by up to 40-50% of the existing loan, including all agency fees.

- Borrowers are advised to be well informed, and not rush into signing a contract with any debt settlement company.

- It is advisable to look for IAPDA (International Association of Professional Debt Arbitrators) certified professionals, because they have an in-depth knowledge of the laws of debt settlement, and are trained to fully understand the financial condition of borrowers. Most borrowers are able to liquidate their debts within 2 to 3 years using debt settlement programs.

- The service charges should be known well in advance to avoid confusion.

- Borrowers should ask the company’s IAPDA certified professional how his/her money will be used.

- Avoid a debt settlement company that takes the initial payments for its fees, because the major portion of this money should go towards loan repayment.

- The borrower’s monthly savings should be used towards the payment of loan within the stipulated time. Ascertain the amount of monthly income to be paid in the debt settlement savings account.

- Good debt settlement companies do not report to credit bureaus. Therefore, borrowers should choose such a company so that their credit report does not show negative remarks, or a low credit score.

- It is important to find out whether a debt settlement company provides any service guarantee. A contract should be signed between the borrower and the debt settlement company, stating that all or part of the client’s service fee will be refunded, if the company fails to settle the loan.

- Ask as many questions as possible. Borrowers need to familiarize themselves with all the terms and conditions of a debt settlement company before opting for it.

- Find out if the debt settlement company is a member of the Better Business Bureau.

- Choose a settlement company that keeps its client’s interests in mind.

- Borrowers should research their options before being enrolled in a debt settlement program of a company.

Debt settlement is a debt relief option that prevents a vulnerable borrower from declaring bankruptcy. Borrowers should choose a debt settlement company that guarantees debt relief.

By: Joseph Kenny