Debt affects most people in America, whether it’s credit cards, auto loans, mortgages, or student debt. Debt can often only be paid off with leftover discretionary income, after all the other bills have been settled. As a result, debt can accrue over years and with rising nature of interest rates it’s only a matter of time till you feel totally strangled by debt.
Debt settlement programs are designed to consolidate debt into a smaller package with manageable interest rates and a longer timeframe to make the creditor whole. But all debt settlement programs are not the same, some can get you into even deeper financial trouble. It’s essential to know what you’re getting into with debt settlement, and to fully understand how the program works so that you can be sure that your finances are on track.
The Third-Party System
Debt settlement often happens through a third-party company, rather than through the creditors themselves. The idea is for the settlement company to take on a number of different loans, payment dates and loan servicing details, consolidate them and deal with the logistics. Many people miss payments not just because they are cash poor at the due date, but also because they lose track of the number of loans they have outstanding—and the specific payment deadlines.
A third-party settlement company can remedy this by tracking all these dates, negotiating a lower balance by guaranteeing the payments and charging you a fee for the service. This makes payment far easier to handle, maintains good credit with timely payments and lowers the overall amount of debt owed. Many of these companies may also negotiate for lower interest rates, which can save you even more money.
Be Selective About Your Settlement Company
Because debt is so rampant in America, there are many companies trying to take advantage of those who are desperate and in financial straits. Make sure you do your research on the company that you’re considering doing business with.
Luckily there are some easy ways to find out how legitimate and trustworthy settlement agencies are. Look for certifications from the Council on Accreditation or another approved third party. These accreditations illustrate that the company has taken the time to be certified and that they are a reputable consolidation firm. A good agency will pay each bill promptly, forward you associated statements, and offer quality customer service. The focus should be educating you on ways you can pay off your debts more efficiently now and how to avoid debts in the future.
Schedule a Consultation Before Taking the Leap
Debt settlement is only one part of a larger financial strategy. In and of itself, settling your debts won’t solve your debt problem. A responsible company understands this and will seek to improve your situation by increasing your financial education and helping you develop a well-rounded financial plan. Schedule a consultation with the firm of your choice—an initial meeting where you can discuss your fears, aspirations and concerns when it comes to your personal finances. From there, you can talk about your options with a financial professional, knowing that you are moving toward a long-term, sustainable plan for financial growth.
Know that Settlement is Not the Right Choice For Everyone
Settlement is the most vital for those who have primarily unsecured debt, such as credit card debt and loans. If your debts are from things like unpaid taxes, child support, and parking fines, then settlement may not be your best option. You should also make sure that you have the cashflow to make a majority of the payments for more than a just a few months. If you don’t have regular income, you might put yourself at risk for being unable to pay your balance, which will only make your situation worse. Speak to a representative during your consultation to determine whether settlement is right for you.
Be Aware that Some Lenders Perceive Settlement Negatively
While being very different from bankruptcy, settlement still may be red-flagged by some lenders. In fact, with settlement you’re still paying all of your obligations and interest, which is great. But some lenders think of it as evidence that you need help with your finances, which can affect your ability to secure a loan from them. On the bright side, debt settlement will not overtly reflect on your credit score.
Can You Do It On Your Own?
It is possible to get the same results out of your financial situation by doing it by yourself, rather than getting help from a debt settlement company. You can contact each of your lenders and negotiate for new rates, and you can keep tidy records of all your payment dates and amounts. With diligence, you can do it—but paying a small fee to a trusted agency to handle all these difficult negotiations and confusing timetables will save you time, which is your most precious commodity.
Whether you decide to pair up with a debt settlement company or not, there’s nothing to lose by visiting a branch and scheduling a consultation with a financial professional who can assess the entirety of your situation and help you choose the right course of action.
If you’re struggling with debt from multiple sources and the case seems hopeless—you’re not alone. There are many ways to settle your debt with specialized programs and be on your way to financial freedom.
Albert Krav is a financial analyst and freelance writer from Los Angeles, California. With over 10 years of experience in the financial industry, he has worked with many prestigious debt settlement companies, like Financial Solutions of America, to help clients out of debt and achieve their financial goals. When he is not busy at work, he enjoys reading and running.