Educational Consumer Tips
Better Business Bureau
If you are overwhelmed by debt, a debt settlement program may be what you need to negotiate the money you owe. Businesses that offer debt settlement programs try to negotiate with creditors to settle payment that is less than the full amount of debt owed. Take precautions and use these tips as a guide when searching for a business that offers a debt settlement program.
Tips For Enrolling in Debt Settlement Programs:
Do Your Homework. Before enrolling in a debt settlement program thoroughly research the business. Search the internet for the business’s name next to the word “complaints”. Read what those who are enrolled now or have gone through the program have to say about the business. If you find the business is in the midst of a lawsuit for participating in unfair practices, look elsewhere for a settlement program. Check out bbb.org to make sure the business is in good standing.
Understand the Risks. Usually programs require participants to make a monthly deposit into a special bank account for at least 36 months. Make sure your budget will allow you to make the long term monthly payments the program requires. Remember the creditors are not obligated to negotiate even if you are enrolled in a program, which could led to the accumulation of interest and fees. Understand your credit score could be negatively impacted because the program may advise you to stop sending payments directly to creditors. It’s even possible to be sued for repayment.
Get Informed. Make sure the business lays out the fees and terms of their services. The business must tell you the timeframe it will take to get results and the percentage of debt that must be saved before the business will make an offer to the creditors. The business should explain the positive and negative consequences if they ask you to stop making payments directly to your creditors.
Discuss Your Account. When you enroll in a debt settlement program, usually participants will put money into a bank account managed by a third party. The third party administrator may change a reasonable fee for maintaining the account, but they are not associated with the debt settlement business and therefore do not earn referral fees. The administrator is responsible for transferring money from the account to pay off your debts with the creditors. Be aware that you may take out your funds at any time without a penalty and are entitled to interest earned.
Look Out for Scams. Avoid debt settlement businesses that charge a fee before they reduce or settle your debts. Beware of businesses that guarantee they can make your debts disappear, stop all collection calls and lawsuits, and have your debts be paid off for pennies on the dollar. It’s a red flag if the business refuses to send you free information about their services unless you provide your personal financial information. The business should not enroll you in a debt settlement program before going over your financial situation and teaching you debt management skills.
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