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In the last year, the pandemic has caused all kinds of financial hardships for millions of Americans. Prior to COVID, 56% of Americans said that debt was negatively impacting their life, and since then, 51 million Americans have increased their credit card debt as a direct result of the pandemic. For those individuals who have become burdened by debt in the last year, debt settlement programs can be ideal for helping pay off high-interest debt as a result of some type of financial hardship.

There are many factors that can contribute to a hardship: job or income loss, death of a loved one, needing to provide care for a relative, divorce, or medical bills, for example. You may be able to convince your creditors to accept partial payment on your debt on your own, but if you have a significant amount of debt you may want to consider having a professional work on your behalf. A professional debt relief organization has some advantages that can usually result in larger savings than an individual can accomplish working on their own. One being, that they are simply more experienced negotiators.

Most of these companies employ highly qualified and certified consultants, with years of experience in negotiating with creditors. Secondly, debt negotiation companies typically represent hundreds, if not thousands of clients simultaneously, and as a result, can package offers to creditors often for up to hundreds of thousands of dollars. The impact of this is that creditors will often agree to settle the debt for a smaller percentage than what is owed, to receive such large payoffs. These companies take a fee for their service, but what you’re paying for by using them is experience, leverage, and most of all increased savings, which typically far outweighs any program costs.

HOW DEBT SETTLEMENT WORKS

The way most debt settlement programs work is, when you enroll in a program, you set up an escrow account (which you control), and make monthly deposits into it. Simultaneously, negotiations are undertaken with each of the creditors that you decide to enroll in the program. 

Once the balance of your escrow account reaches a level that can be utilized for an offer to your creditor(s), your unsecured debts are then settled for less than what you owe. The interest rates are not negotiated, but the overall debt amount is typically reduced (industry averages are 40-60%), helping you pay down the debt faster than just making minimum payments every month. You have one monthly program payment, and even though your creditors are contacted to obtain a settlement on your behalf, you still get to approve the final settlement amount.

Another way a professional debt relief company can be helpful is if you get sued over your debt. Many creditors will attempt to collect on debts through lawsuits. Most reputable debt settlement companies will offer third-party options for limited legal representation if a creditor does take legal action.

Some other considerations when utilizing a debt settlement company: typically only unsecured debts can be enrolled, which means you cannot settle debts such as mortgages, or auto loans, or student loans. Also, keep in mind that while you’re participating in this type of program, it is likely that your credit score will be negatively impacted since you’ll need to make the decision to stop paying your creditors (for negotiation purposes).

IMPORTANT FACTORS WHEN CONSIDERING A DEBT SETTLEMENT COMPANY

Just like shopping for a car, home, or insurance policy, you should do your due diligence when researching a company to represent you in your debt settlement. As debt rates grow nationwide, so too do companies popping up claiming to solve all of your debt-related problems. Don’t get caught up in too-good-to-be-true promises by fly-by-night firms. Here are some key points to consider when deciding on a debt settlement company.

Reviews

Sites like Trustpilot or the Better Business Bureau can provide valuable insight into the company you’re communicating with. Do they have a lot of good, positive reviews? Do their customers seem happy and satisfied with the service they received? There will always be some people who have a discontented experience, but overall, if the company has overwhelmingly positive reviews, you should feel confident in retaining their services.

Time in Business

The longer a company has been in business, the more confident you can feel about the service they provide. Companies that put the client first and work to address their needs stand the test of time, those that don’t, don’t. Regarding debt settlement firms, there is an added benefit of the length of time in business, as it is reflective of their success in negotiating settlements that benefit the consumer. Ultimately, more settlement success equals more savings for you the consumer.  

Transparency

The debt settlement company you work with should be available to answer your questions. Your representative(s) should maintain open lines of communication with you whether it’s a quick email or a longer inquiry over the phone. They should be open about explaining how the settlement process works with their company, fees, and setting expectations. 

Industry-certified

Make sure any company you work with has IAPDA-certified debt consultants that are trained in best practices with debt settlement.

Often when it comes to debt, many people are either unsure of where to begin, feel overwhelmed, or feel shame about being in the situation they’re in. It’s important to understand that unmanageable debt affects millions of Americans, and especially more since the pandemic upended everyone’s lives. If you find yourself in a similar circumstance, don’t wait to do something about it. Whether you manage it on your own or have a company handle it for you, the sooner your start, the sooner you’ll be able to focus on your goals and dreams. 

Want a free resource on how to become debt-free? Simply download our free e-book, "A to Z of Debt Relief" here: https://financialrescuellc.com/debt-relief-ebook/

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