Debt settlement programs are steered by for-profit companies that function in exchange of a fee. Their primary function is to negotiate lump sum unsecured debt settlements for much lower amounts than the full balances that you owe. Generally, you, as a borrower, would require having outstanding loans worth at least $10,000- but yes this amount varies widely with companies.
There are experts who opine that Debt Settlement is really not a good idea with most of these companies ending up quoting typically high upfront plus monthly fees. The initial charge quoted by these companies can be as high as 15-17% of what you actually owe. There are some that might even charge you a back-end fee. In short, most of your monthly savings can jolly well be all spent for the entire program itself.
So, what exactly is this process all about? Should you at all think of opting for it when you’re saddled with too many debts? Let’s explore. Make sure you’re considering these points (mentioned below) thoroughly, so that you can make an informed decision as to what you want to do with your present loans.
The Process
In the age of tough finances and tight job prospects, the promises delivered by debt settlement ads sound real tempting. You might as well know people who have settled their pennies for dollars. All this results in you being too eager to jump the bandwagon- get rid of your loans, thereby leading a loan-free life. But wait. Educate yourself. Think and then take steps. Read on to know more about the entire process and then make a decision. There are some inherent truths associated with these programs that you should know about before you’re opting for the same.
The Truths
Screening
Firstly, very much against the popular belief, debt settlement programs do not include debtors indiscriminately. It should not be believed that anyone can get their debt settled for any reason whatsoever. Legitimate companies or creditors would only consider hardships like divorce, medical conditions, job loss etc. They thoroughly screen their clients as not all the borrowers’ “needs” or “hardships” can meet their underwriting criteria.
Credit Scores
Know for a fact that opting for these programs might hurt your credit scores. Your credit scores will not really go down if you request for one. But yes, if you qualify for the entire process, you might as well see plummeting scores. There are some companies that advice you to skip your payments. If you heed this advice then also your scores would go down.
Calls from Creditors
There is no guarantee that you would stop receiving collection calls after enrolling in a settlement program. The company might as well keep on sending cease-and-desist letters to your creditors but they generally remain ineffective. In fact, is every chance of collection calls increasing. If you’re bent on skipping payments your creditor might sue you as well.
Conclusion
Make sure that whatever kind of debt load you’re dealing with, at present, you’re exploring (or exhausting) all the available debt management resources before opting for these programs. There’s no need to rush. Sit back and think about the pros and cons and then decide.
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