What You Should Know About Debt Settlement

Debt settlement services are available all throughout the United States, but what consumers aren’t always aware of is how the settlement company operates. Unfortunately, there are a lot of debt settlement services that don’t always have your best interests in mind. Companies might offer (or sometimes even “promise”) that they can drastically decrease your debt. However, such a promise is not always true.

If you’re shopping around for a debt settlement company, there are at least three main things you should know about debt settlement. Use the list below to help you become more knowledgeable about the somewhat fishy business practices of debt settlement companies.

Debt Settlers Are In The Business Of Sales 

The important thing to remember is that debt settlement services operate on a business plan. When a company provides you with a monthly payment quote, they are assuming that the creditor you owe debt to is going to settle at 40% (or .40 cents per dollar). Therefore, the debt settlement company will add on a service fee into your monthly payment. Translated, this means that not all of your monthly payment is going directly to paying off your debt because a portion of the payment is being sent directly to the debt settlement company.

So, what else do you need to know about debt settlement business plans?

  • Employees typically have a background in sales. If you’re looking into settling a debt, there’s a pretty good chance that you’re already feeling somewhat vulnerable. Debt settlement companies recognize this and use it to their advantage. In response, they hire representatives with experience in sales. In other words, when you think you’re talking to a credit counselor, debt settlement representatives are actually using sales tactics on you.
  • It’s likely that employees work on commission. Again, sad but true. The person on the other end of your phone is typically working on commission. The more people they settle into a plan, the higher their check is. A lot of people in debt don’t realize this when they start business with a debt settlement company. There are many reasons that factor into explaining why this occurs. For instance, the companies really don’t know consumers to know about debt settlement operations, but it largely happens because debt settlement employees are good at their jobs: sales.
  • Companies take upfront fees. Debt settlement companies operate within a plan that has some transparent ethical boundaries that can easily get crossed. As mentioned earlier, when you send in your monthly payment, the debt settlement company takes a portion of your payment and keeps it for themselves.

There are different types of debt settlement “fees”

As the previous section details, debt settlement companies are in business in order to increase revenue. As such, the federal government has set rules and regulations that you should know about debt settlement companies. For example, one regulation, the Telemarketing Sales Rule, ensures that debt settlement companies don’t profit in the form of upfront fees. But, what you need to know about debt settlement fees is that they may come in a lot of different forms so that the company doesn’t get into legal trouble for profiting off of your monthly payment fees.   Any given debt settlement company might utilize any number of the following methods to avoid legal woes for charging monthly fees:

  • Attorneys are not included in the Telemarking Sales Rule, so a debt settlement company might utilize an attorney’s license once the consumer has field Chapter 7 and Chapter 11 bankruptcy.
  • There’s record of some companies calling the upfront fee a “maintenance fee” that can be charged monthly.
  • Consumers who are in otherwise good financial standing and can pay off in the first 3-4 months, but thereafter are charged a fee.

You Don’t Have To Hire A Debt Settlement Company

Now that you are a little more in the know about debt settlement services, you should also understand that a debt settlement company isn’t always necessary. There are various other routes you can utilize in order to pay off debt. Here are a few common methods to pay off debt without going into business with a debt settlement company:

  • Negotiate a payment plan with the creditor to whom you owe money to
  • Work with a collection agency that works directly with the credit
  • Learn about debt management and seek out debt management educational programs
  • Consult a bankruptcy attorney for advice

If you have exhausted all of these options and truly feel that working with a debt settlement company is your best (or perhaps only) way to handle debt, make sure you do extensive research so you know about debt settlement company services, rules, restrictions, etc. Any time a company includes a monthly service, maintenance, or upfront fee, you should steer clear. Otherwise, use your gut instinct. If you feel you’re being ripped off, you may very well indeed be.