So, you have unmanageable debt and are considering the services of a debt settlement company, but you’ve heard horrible stories of unethical companies and consumers who’ve ended up in a worse situation after becoming involved with them. How do you know whether your prospective debt settlement provider can really help you? The debt settlement process is not complicated, but the results are also not predictable, and any provider who claims to deliver specific results is not being honest with you.
To reveal your vendor’s true intentions, ask these nine questions and confirm that their answers are truthful.
1. Why do you think a debt settlement program is the best solution for me?
Consumers have many debt relief options and each option has unique advantages that make it the best choice for some consumers. Unfortunately, some solutions also offer advantages to your creditors or the debt relief company. Debt settlement is potentially the most lucrative solution for the services provider, which, predictably, means it is recommended often. Read our articles on debt settlement to understand when it is best for the consumer and then ask the provider to explain why they recommend debt settlement for you. If the two descriptions don’t agree, consider another solution or another provider.
2. Do you earn a fee even if I am unsuccessful in completing the debt settlement plan?
Though the Federal Trade Commission recently outlawed advance fees for debt settlement companies that are subject to their Telemarketing Sales Rule (TSR), other debt settlement professionals can and do charge such fees – often regardless of whether they actually settle a debt for you or not. The TSR has had the unfortunate effect of driving many debt settlement companies out of business, despite the real value that debt settlement offers to consumers; however, if you are able to find a provider to help you, don’t agree to pay a significant upfront fee. A few hundred dollars should be adequate to cover their initial costs to work with you.
3. Do you guarantee that creditors will accept my debt settlement offer?
Any company that guarantees results is lying to you. Creditors do not have to accept a settlement offer, and unless you are on the verge of bankruptcy, many won’t. Do not do business with any company that guarantees to settle your debts.
4. By how much can you reduce my debt owed?
The debt settlement company cannot guarantee how much you will save. Each case is unique, and creditors have different formulas for calculating how much of a discounted offer they will accept. If the company claims that it can save you a specific amount – and many unethical companies do – run away.
5. Will my credit score be hurt by debt settlement?
The honest answer is “yes.” If the company makes any guarantee that your credit will not suffer after debt settlement, it is a lie. Beware of overconfident companies.
6. If a debt settlement escrow account is required, how is it managed?
The TSR includes new requirements regarding escrow accounts, and even if that rule does not apply to your provider, you should insist that it adhere to those conditions. Their answer should confirm that you own the funds deposited (including any interest accrued) and can withdraw funds without penalty at any time. Confirm that the debt settlement company does not own, control, have an affiliation, or receive a fee from the account administrator.
7. Should I stop making payments to my creditors?
An ethical company would not be able to answer this question without an in-depth analysis of your personal financial circumstances. If they conduct that analysis, and then recommend that you stop paying creditors, they should also clearly explain the risks and consequences of doing so.
8. Should I cut off communications with my creditors?
Although it can be depressing to talk with creditors when you don’t have the money to pay them, don’t let the debt settlement company assume that responsibility, even when they ask you to let them. Chances are that they won’t communicate to your creditors in a responsible manner. A more likely motivation for wanting to cut off communications is to keep you unaware of the creditor’s plans to file suit against you.
9. Can you stop all calls and lawsuits by debt collectors?
This is another question intended to elicit an unethical response. The honest answer is “no.” No one can stop a creditor from filing suit. And, only by hiring legal counsel and referring the creditor to them, or by sending a certified letter stating your intention to not pay, can you stop phone calls from debt collectors.
An ethical debt settlement company will inform you of the risks and rewards you may experience from their services. They will describe the potential range of savings, but won’t make specific guarantees without examining your finances in details. The company will not make unrealistic promises regarding your credit score. While it may be difficult to locate an ethical debt settlement company considering the FTC’s restrictions that effectively make the business less profitable for providers, the potential benefits make the effort worthwhile for consumers facing potential bankruptcy.
If you’re having trouble paying your credit card bills and other unsecured debt find out how debt settlement can help you avoid bankruptcy and become debt free faster.