Getting out of debt reminds me of playing the game Monopoly and using a “Get Out of Jail” card. By drawing the card, I can continue playing. It’s the one card that allows me to get out of an unfavorable situation immediately. Then, I can move forward to make trades and negotiate the best deals to build my real estate empire.
Similarly, until someone settles their debts, they feel like they’re locked in prison. They look for ways to get instant, financial relief. One way people do that is to use a debt settlement company.
This post addresses how debt settlement companies can help and provides guidelines on how to find one as well as companies we recommend using. Our goal is to help you decide if debt settlement is your best option.
What Can a Debt Settlement Company Do for You?
When you don’t pay down your debt, you incur late fees and other charges and risk ruining your credit. In some cases, creditors freeze your bank accounts, repossess vehicles, and may even take over your home.
A debt settlement company is similar to the banker in Monopoly. That person controls money, property, and houses. Additionally, the banker can auction off properties to the highest bidder. Players hand money to the banker to buy properties and earn rent or pay him to get out of jail. Comparably, when you use a third-party company, you give permission to the debt settlement company (for a fee) to act as a financial intermediary on your behalf. It negotiates with creditors to reduce your overall unsecured debt into one payment or reduced monthly payments. You can instantly free up your business’s cash flow and stop creditors from pestering you.
On the flip side, you pay them to represent you but sometimes creditors refuse to settle the debt so you won’t be any further ahead. Also, if creditors write off uncollectable debt, this can negatively affect your credit score.
Guidelines to Find a Debt Settlement Company
Use the following recommendations to find the best debt settlement company and avoid unpleasant surprises.
- Check the debt settlement company’s ratings: The top debt relief providers have a Better Business Bureau (BBB) rating of A+. This rating indicates that a company operates its business in a trustworthy manner and keeps its complaint volume low. If a business does receive a complaint, they respond quickly and resolve any issues. The BBB is the most respected independent business review organization in North America.
- Compare the minimum required debt and minimum debt per account: The minimum required debt averages $7,500 among debt settlement companies with a minimum debt per account of $500. If your debt falls below these averages, you aren’t eligible for help.
- Contrast fees: Fees can vary from 15% to 25% or more. Also, keep in mind that debt settlement companies charge fees based on your total debt (before reductions) or the total reduced debt amount. As an example using the above fee percentage range, If your total reduced debt amounts to $10,000, a debt company would charge between $1,500 to $2,500. If they charge on a total debt of $12,000, their charges would be $1,800 (15%) and $3,000 (25%).
- Check accreditations: Look for American Fair Credit Council and International Association of Professional Debt Arbitrators accreditations. Companies with these commendations meet specific standards and compliances to protect consumers.
- Compare the types of debt settled: Find out if companies settle high-interest credit card debts, private student loans, and other types of unsecured debt. As a side note, most companies don’t settle Federal student loan debt.
- Other considerations: Avoid using a company that encourages you to stop making payments so creditors will settle your debts. You’ll rack up more penalties, interest, and fees. Plus, you’ll continue to cause your credit score to plummet and accumulate negative notations on your credit history. That’s because your payment history (35%) and the amounts you owe (30%) account for 65% of how your FICO credit score is calculated.
Our Recommended Debt Settlement Companies
- National Debt Relief: Excellent customer feedback, AFCC accredited, and NDB works with customers who have over $20,000 in debt. NDR’s standard reduction percentage averages 50% and they charge fees in the 15% to 25% range. Customer service agents go over associated risks of debt settlement with potential clients.
- Freedom Debt Relief: The company has been in business for over 17 years and settles approximately 50,000 accounts per month. Currently, it offers services in 37 states and focuses on helping people struggling to pay credit cards, loans, and store cards. The minimum debt requirement is $7,500 and customers work with IAPDA-certified consultants.
- Pacific Debt Relief: Personal account representatives work with clients to find the right solutions to reduce debt. Dedicated case handlers are known for providing quick responses. The minimum amount of each account is $750 while the minimum total debt is $7,500.
- DMB Financial: Having been in business for 14 years, the company has saved clients $1 billion in debts. Both AFCC and IAPDA accredited, DMB charges an average fee of 21% of the total settled debt. The company services 26 states and doesn’t charge any upfront fees which is the industry standard.
Is Debt Settlement Your Best Option After All?
When playing Monopoly, players go bankrupt when they don’t have enough play money or assets to pay the bank. If that happens to me, it means I’m out of the game. Of course, Monopoly is make-believe amusement meant to entertain.
In real life when you can’t settle your debt, creditors won’t extend credit, you may have trouble renting a property and you’re less likely to qualify for a car or home loan.
As you’ve seen, using debt settlement to pay debts has advantages as well as drawbacks. Compared to debt settlement, debt consolidation is a viable alternative so you don’t continue to struggle financially. Your debts are consolidated into one payment to pay off old debts with a new loan. You avoid missing payments which normally improves your credit score.
In case you didn’t know, you can use a Camino Financial business loan to consolidate your business debts. In most instances, borrowers lower their overall interest rate as compared to the average interest rate they pay for multiple debts. Read this article, “Can You Use a Business Loan as a Debt Consolidation Loan?”, to find out how a debt consolidation loan works.