8 Questions to Ask Before Choosing a Debt Settlement Company

If you need help handling debt for your company, you must know your options for services. Ask these questions before choosing a debt settlement company.

Life can get pretty stressful and black and white when you’re wallowing in debt. You could pay off the debt if you had the money, but financial constraints preclude you from doing so. For a little debt relief, most people opt for debt settlement companies.

A debt settlement company negotiates with your creditors to facilitate some debt relief on your end. The company does so by restructuring the debt, requesting forbearance, or settling the debt entirely.

The average American is about $38000 in debt, with student loans and mortgages being the highest debt sources. While debt isn’t uncommon in the country, you still have to pay yours.

For a lot of folks, debt settlement companies are a viable option for debt relief. If you’re thinking about hiring a debt settlement, then read on. We’ll be looking at seven questions you must ask before picking a debt settlement company.

  1. How Long Will It Take to Settle My First Debt?

If you’re like most people, you have more than a few debts that you have to settle. These companies thus take a step-by-step approach if that’s the case. Typically, they’ll start with the largest debt first, before proceeding to the others.

Remember, the more time they take to clear the debt, the worse it gets for you. That’s why it’s so important to know how long it will take them to clear the debt.

  1. How Long Will the Entire Process Take?

It’s extremely difficult for debt settlers to tell you exactly how long it’ll take to take care of your debt. That’s because a lot of factors come into play to determine the time it takes to clear your debt completely.

However, the company should be able to give you a rough estimate of how long they’ll take to do so. Again, the shorter it takes, the better, because most debts like loans have interest, which means the longer you take, the more money you’ll pay.

  1. Do I Have to Pay Any Taxes?

It’s a good idea to inquire whether debt settlement will attract any taxes. The last thing you want is to be in bad books with the taxman after you clear your debt. So make sure you understand clearly the tax implications that come with hiring a debt settler.

To make it easier for you, yes, you do have to pay taxes whenever you hire a debt settlement service. Plus, the lenders also have to pay taxes on their end to comply with IRS regulations.

  1. Does It Impact My Credit Score?

Maintaining your credit score is very important since it determines your borrowing capability in the future. When you transfer your debt to a debt relief company, there’s a high chance that it will affect your credit score. That’s because doing so means prolonging your debt repayment, which negatively impacts your credit score.

Letting the debt relief company handle your credit card debt means ceasing all the credit card payments, at least temporarily. However, even though you’ll own the credit card much more in the end, it doesn’t matter because you’ll have cleared everything.

  1. Will You Take Care of All My Debt?

If you’re drowning in debt, then you’d want to know whether the company will take care of everything. The answer to this depends entirely on the debt settlement company and your input to the debt settlement.

Typically, the company needs you to open an account where you’ll deposit money specifically to settle your debts. If you have a lot of debts, you’ll need a lot of money to clear the debts, even though the company gives you some debt relief. So most companies can take care of all your debt, but only if your input in the debt settlement is significant.

  1. How Much Will It Cost Me?

Debt settlement companies have different ways of charging their clients. The most common method is charging a percentage of what the client owes. The companies also charge a service fee, apart from a percentage of the debt you owed.

All in all, expect to pay between 65% and 85% of the amount you owe when you hire a debt settlement company.  Some will charge a percentage of the amount they help you recover if they don’t clear your entire debt.

Stay away from companies that ask you for upfront payment. The Federal Trade Commission made it illegal for debt settlement companies to charge for their services upfront. That’s because the client will be on the losing end should the company fail to clear the debt.

  1. Are You Registered With the BBB?

The Better Business Bureau or BBB is a platform that gives you information about a company’s reputation and reliability, among other things. This helps you make a more informed decision whenever you need a company to do your bidding.

You‘re likely to trust a company that’s registered with the BBB. So, find a bbb debt consolidation company to help you with your situation.

  1. Where Do You Keep the Money for My Debt Settlement?

The company typically opens an account where you’ll deposit money to settle your debts. This is mostly an escrow account that should be FDIC insured. With an escrow account, you can terminate your agreement with the company and still get back all your money.

If a company can give you a 100% satisfaction guarantee, including the ability to withdraw your money at will, then you’re in the right hands. You don’t have to pay anything when you withdraw all your cash.

Let a Debt Settlement Company Handle Your Debt

If debt is giving you sleepless nights, then you might want to get help from a debt settlement company. Armed with these few questions, you’ll be able to get the right company to get you out of debt. However, try negotiating with your creditors first, before seeking the help of a third party company.

In some cases, you might be able to reach an amicable agreement with your creditor. If you don’t, then you can start looking for a debt settlement or debt consolidation company.

Is your business stuck in debts? Check out our other articles for more tips on how you can get the finances back on track.

Give a Comment