A simple Google search on “debt settlement feedback” reveals that people either love or hate their debt settlement company.
- Those who make the right choice when picking a company love the professional debt settlement services they get.
- Debtors whose unrealistic expectations lead them to make the wrong choice hate their service providers.
Before you enroll in a debt settlement program, you need to find out whether this solution is indeed the right one for your needs. Talk to a ClearOne Certified Debt Specialist to learn about your debt relief options and have your questions answered.
Here is a list of nine questions you should ask a debt settlement company. Based on the answers you receive and the explanations you hear, you should be able to make an informed decision.
Do you operate legally in my state?
All debt settlement companies are federally regulated, and there are consumer protection requirements and other licenses (such as telemarketing licenses) needed in many states.
Beyond those common legal requirements, the requirements vary greatly among the states. For instance, some US states (such as Alabama and Alaska) allow debt settlement companies to operate without additional legal restrictions like bonds.
In states like Missouri, debt settlement companies need to file a blanket bond worth $100,000 to receive a license. In other states, like West Virginia, it may be forbidden for debt settlement companies to operate under any circumstances.
If the company cannot adequately answer this question, you should not do business with it. Make sure that you understand the debt settlement statutes of your state.
How long have you been in business, and how much debt have you settled?
You need the company to demonstrate its experience. An experienced operator has a reputation that you can verify online. Also, many companies do not settle much debt. If that is the case with your company, consider that a red flag.
Can you stop creditors from pressuring me or suing me?
This is a trick question. Debt settlement is an adversarial approach to debt resolution. Your creditors may or may not agree to the offers your debt settlement company makes. They can continue their debt collection efforts or sue you for discontinuing payments.
If your company says it can silence your creditors and protect you from lawsuits, exercise caution. Though some debt settlement companies do offer legal insurance programs and others employ lawyers to work with creditors on your behalf, that is not always the case. Be sure to investigate exactly what legal protections your debt settlement company offers, if any.
How do your fees work?
Federal law forbids debt settlement companies to charge you upfront fees. If that is what your company tries to do, drop it. Your Debt Settlement Plan (DSP) should only charge you after it negotiates a settlement for your account, you authorize the settlement, and payment is made towards the settlement.
Also, your Certified Debt Specialist should be clear about the costs of services.
Do I retain full control over the escrow account you use for settlement?
Your Debt Settlement provider will have you establish a dedicated savings account to accumulate your funds and eventually make your creditors an offer that will be paid out of funds accumulated in that account.
You need this account to be:
- In an FDIC-insured bank
- In your name
- Under your full control, so you can withdraw funds from it if/when you wish
If your debt settlement provider fails to meet these conditions, look for another one immediately.
How quickly can you settle my first account?
Although it can offer you no guarantees in this regard, your debt settlement company should give you an estimate. It could take four to six months or more to settle your first account, depending on your contributions and other factors. Beware of debt settlement companies that promise very fast results, as those companies may not be painting an accurate picture of the debt settlement process.
Does debt settlement hurt my credit score?
Because most creditors will not negotiate favorable settlements with accounts that are current, debt settlement does inflict a hit on your credit score that may last up to seven years. Though that is the case, getting out of debt can ultimately improve your credit score over time (in just one to three years, according to Bankrate) as you rebuild good credit once you are debt-free.
Are there any tax consequences that may result from your services?
Your DSP saves you money by getting creditors to forgive some of your debt. From the perspective of the IRS, such savings represent income and are, therefore, subject to taxation.
Consider it a red flag if your DS company tells you otherwise without offering specifics regarding legal ways of having your taxes waived.
Can you tell me exactly how long it will take me to settle all my accounts and how much it will end up costing me?
This is another trick question. Your debt settlement professional cannot offer such information. While it is impossible for your debt settlement provider to tell you exactly how much you will save, it can give you an educated estimate. Speak with a ClearOne Advantage Certified Debt Specialist at 866-481-1597 to discuss your debt relief options and get a free savings estimate.