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What to Avoid When Choosing A Debt Settlement Company

Written by Banks Editorial Team

Updated April 22, 2021​

2 min. read​

It is important to know what to consider when choosing a debt settlement company. It can be devastating to see your debts rise and your credit score fall If you’re in this position, you might have considered contacting a debt settlement company. In general, debt settlement companies have a bad reputation. Even the reputable companies may not prioritize your financial well-being. That being said, there are decent companies out there and you could benefit from their help.

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What is Debt Settlement?

Regardless who it’s done by, debt settlement works by negotiating with creditors to pay them less then you owe. Creditors may or may not agree to settle. It depends on their financial situation and the length of time they have been waiting for your payment. At the end of the day, creditors would rather receive some money from you, than possibly none at all.

Will a Debt Settlement Company Work for Me?

Debt settlement only works for debts without collateral. Debt settlement can be used in the case of unsecured credit card loans and consumer accounts. Resort to using a debt settlement company when you are currently behind on payments and your credit rating is low.

Debt settlement companies assess how much you owe and then they work out an amount for you to pay every month. They wait until you’ve accumulated a larger amount of money before contacting creditors to negotiate a settlement.

In the time it takes to collect a sum of money your creditors will not be paid. This means that your accounts will be even more behind in payments which will affect your credit rating. If your credit rating is already low this may be less of a concern for you.

Choosing A Debt Settlement Company

When choosing a debt settlement company, be sure to look out for outlandish claims.

Debt settlement companies cannot force a creditor to accept a settlement offer. Arguably, the most important thing to look out for is whether the company guarantees to settle with all of your creditors.

Other larger-than-life claims include guarantees that you won’t receive calls from credit collectors, or that your credit rating won’t be hurt. Debt settlement companies should not ask you to pay them before a debt has been settled. The Federal Trade Commission (FTC) ruled that settlement companies disclose their fees upfront.

According to the FTC, debt settlement companies must be transparent with you and tell you how long and how much money you need before you can settle. Settlement companies must also disclose “the possible consequences if the customer fails to make timely payments to the creditor’s”.

Finally, avoid debt settlement companies that claim to have access to a new government program that helps people in debt. Agencies who do this are scams.

Alternatives to debt settlement companies

Many credit agencies have lower payment options for people going through financial hardship. Call your creditors to explain your situation and see if you can make alternative arrangements to pay off your debts. You could also try and settle outstanding amounts by yourself by negotiating with creditors.

Choosing a Debt Settlement Company: Conclusion

The bottom line is that if you decide to use a debt settlement company, choose one that is open with you about the pros and cons of settling.

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