Perhaps we’ve asked an impossible question – are there even any good ones out there TO be found? Isn’t the entire premise of the creditinfocenter.com website to educate and teach individuals that they can pursue credit repair, debt settlement and other credit and debt-related actions effectively on their own?
Although we are strong advocates of avoiding the use of debt settlement companies, we also recognize that not everybody has the time, or desire to take on the task of tackling debt settlement negotiations with their creditors. So the next best step is to find a company that is trustworthy, knowledgeable, honest, and reliable.
Finding a good debt settlement company isn’t easy. There are so many companies out there babbling about how great they are, how you can settle your debts for pennies on the dollar – they all start to look alike after a while. Ads on TV, the radio, in newspapers – their jingles are likely plastered in your brain. But how in the world can the average person tell the good ones from the bad ones?
The answer is, to “interview them”. Much like you would interview a potential caregiver for your child with appropriate questions to assess their skills and knowledge, it is crucial that you ask a potential debt settlement company relevant questions to determine their level of expertise (or lack thereof). Here is a list of questions that you should always ask!
How much experience do you have? In this industry, if a company hasn’t been around for at least 3 years, stay away from them!
Are you a member of TASC? The Association of Settlement Companies is the most prominent trade association for the industry, and has a fairly strict code of ethics. Any company you choose should be a member. Additionally, review the company’s record with the Better Business Bureau as well as their state Attorney General or Commissioner of Banking.
How are your fees structured? Settlement companies charge significant fees, but there are two basic approaches. One approach involves collecting a flat fee based on your total debt amount, and the fees are often collected up front even if no settlements are completed. Another option the settlement company may offer is to base their fee on the amount of debt reduction they can negotiate. Fees should ultimately be based on performance and total debt reduction achieved, not debt amount. Furthermore, if employees are paid on a commission basis, run away!
If I decide to cancel, what is your refund policy? You should be provided AT LEAST a 30 day period to cancel with a full refund of any up-front fees.
How long will it take to get results? If they promise immediate results, or indicate it will be more than a year before progress is made, both are red flags. Some settlement activity should occur well within the initial 12 months of the process.
What happens to my credit score? If they tell you that it won’t be affected negatively, they are being dishonest. Your score is highly based on repayment of debt, and the debt settlement process usually involves a period of non-payment to the creditor while negotiating and collecting payments into a third party account. Expect your score to be reduced initially.
Where will my payments be sent? The answer should always be to a third party escrow company and held in a FDIC insured trust account.
Will there be any tax implications from the debt settlement process? In many cases a consumer will be responsible for taxes on the forgiven debt. If the forgiven debt totals $600 or more, you will generally owe income taxes on the amount forgiven, substantially reducing the total savings from debt settlement. If the company tells you otherwise, run away!
When you are at your lowest point and feel there is no other way out, you may hear a commercial that says you can be “debt free in a matter of months”. It is easy to fall prey to these companies when you are in a vulnerable state, and feel you have few options. Use the information above to help screen and choose a company wisely if this is the route you choose to pursue. For further information on debt settlement companies, consult the The National Foundation for Credit Counseling (NFCC).
Readers, if you have any experiences with debt settlement companies that you would care to share, please do so with a comment?
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Cindy posted some very useful information. howver, there is more info that may assist you in finding the right company. First and formost you should look for a law firm. Not an attorney based, or attorney backed, or attorney network but an actual lawfirm that is a member of the various State Bar Associations. This will afford you the protection you need under the law. The fact remains that if you are with a “debt settlement” company and get sued ( which can and does happen) the debt settlement company can not represent you under the law. They must tell you to find your own attorney and pay a new retainer and hope that htey are not too late. Under the Fair Debt Collections Practices Act once a creditor knows that you have attorney representation, they must cease communication with you and communicate with your attorney. Law firms tend to receive better settlelemtnt and can even settle once a creditor has gone to law suit. As far as TASC? I am personal friends with many of their board memebers and they exist mainly as a lobbiest group who’s goal is to change exsisting consumer protection laws aaginst non attorney debt settlement. they are their to benefit the debt settlement companies and make it easier and more profitable. law firms do not advocate the reversal of laws designed to protect the consumer and therefore generally are not members of TASC. Law firms must adhear to a much higher standard with the Bar Associations. Most legitimate law firms work on a performanced based contingency and get paid based on the clients success. I hope this helps.
Thanks for all the help. It’s nice to see a site that lets you know to be careful about the type of companies you deal with. Knowing what to watch out for is a great help.
Kevin –
Might want to check your facts. A lot of what you said is quite obviously untrue. It saddens me to read a post from an uneducated individual like this. You dont realize the repercussions.
They are a total rip off and people who are the most vulnerable w/try almost anything to eliminate there debt. I will they were ALL put out of business…
Woops. Meant to say I wish they were all put out of business….
There are several companies who are sincerely trying to help people. If you have more than $10,000 in debt, and a real hardship, debt settlement can be the best way for you. It depends on each situation. No one can say it is bad or good for a person until the entire facts are known.
I can say this: It is true that if the company has not been in the industry for more than three years – don’t use them.
If they don’t require statements or an accurate accounting of your debt situation – don’t use them. If they use heavy sales tactics – don’t use them. There are many people trying to take advantage of others in this industry. If you can do the settlement yourself – great! If you need an advocate – be careful who you choose. I found lots of useful information at DebtGOTOGuy.com. This man has a blog with Q&A, and lots of information about debt settlement, bankruptcy and the cost of each, in both terms of financial layout and long term damage to credit scores. I recommend being entirely prepared with the knowledge of how credit works, and what will happen to your credit before you make any choice concerning your debt.
I used a free referral service. Not only did she explain all of the different programs (consolidation, settlement, bankruptcy, and couceling), but she also found an Accountant that has experience in debt elimination taxes. She helped with my application after I figured out which program I wanted to proceed with. I found them at etpsfreedebthelp.org .