What Differentiates Debt Settlement Companies

What differentiates debt settlement companies from assisting people in eliminating debt or compounding more are often found before and during the initial meetings. People wanting to eliminate or reduce debt typically have a variety of options such as filing for bankruptcy, negotiating debt settlements on their own or seeking the help of debt settlement companies.

In theory, these companies are working on your behalf to negotiate lower interest rates, lower payments or cancel the debt completely. According to the Better Business Bureau of Greater Maryland, some consumers who paid for debt settlement services have found out that the companies took their money and ran. However, there are good settlement companies out there. For instance, reputable companies do not convince people who don’t have the ability to pay to sign up for debt settlement programs.

Companies Tell about Upfront Fees

According to the Association of Settlement Companies (TASC), a non-profit organization which promotes good practices within the debt settlement industry, suggests people look for some key factors about fees—although not required—when determining whether to use a debt settlement company. Debt settlement companies often charge fees when assisting clients with debt elimination. However, these fees should be explained upfront and should be stated in the agreement as the principal dent amount. Also, the maximum fees of the entire program shouldn’t exceed 20 percent of the debt amount owed.

Non-profit Companies are For Profit Companies

Debt settlement companies may represent themselves as not for profit. However, they may be illegal or not legitimate, according to the Federal Trade Commission. These companies may take people’s payments, but not pay lenders. In fact, MSN Money, at least 12 states have prohibited companies representing themselves as non-profit from practicing in their states. These non-profit debt settlement companies aren’t even allowed to contact people living in the states where they are banned.

Debt Settlement Companies Shouldn’t String Out Payments

Good debt settlement companies typically offer debt settlement programs that do not exceed 48 months in length. Debt settlement programs which exceed this timeframe, according to TASC, increase the chances of creditors filing lawsuits to reclaim the owed debt because money hasn’t been paid off. Also, longer programs work against people because they may not be able to keep up the payments.

Using a Debt Settlement Attorney

It is usually in a debtors best interest to talk to a debt settlement attorney before signing up for services through a company. Attorneys are bound by ethical laws, and can often provide much better protection from creditors than a company with only one attorney representing hundreds of clients.