Considering Using a Debt Settlement Company, Read This First…

Posted by Adam Gomez

Debt settlement is the process whereby you negotiate a payoff with your creditor that is less than the full amount you owe. The creditor considers the account to be settled in full and your balance is now $0. Some consumers have done this on their own and some consumers have hired companies to do this for them. The latter are called debt settlement companies.

Debt settlement companies have a relatively poor reputation because of rotten apples spoiling the bunch. And while not all debt settlement companies are pure scam artists, there are certainly many that are. If you insist on using the services of a debt settlement company – though I wish you wouldn’t – then consider this advice from Gail Cunningham, Spokesperson for the National Foundation for Credit Counseling:

“Consumers considering using a debt settlement company would be wise to:

Review the company’s record with the Better Business Bureau as well as their state Attorney General or Commissioner of Banking;

Confirm that the account holding your deposits is FDIC-insured;

Obtain all disclosures in writing, including a good faith estimate of costs associated with the settlement;

Inquire about refunds of any money on deposit should you wish to drop out of the program;

Be cautious about promises or guarantees that seem unrealistic.”

I’d also be remiss if I didn’t point out the credit implications of using debt settlement. Debt settlement does not protect you from being sued by your lenders. It also locks in lower credit scores for years to come.