How to Choose a Debt Settlement Company?

Want to know How to Choose a Debt Settlement Company? If yes, you are in the right place.

The goal of a debt settlement company is to negotiate with your creditors when you have unmanageable debt. Still, different services are competing for your business when you’ve got unmanageable debt. Each company has its fees, accreditations, and certifications and is in business at a different stage than another. Choosing an accredited, reasonably priced, and trustworthy debt settlement company is essential if you decide that debt settlement is the right fit for your situation.

You may have seen advertisements promising to settle your debt for a much lower amount than you owe. Many people wonder whether these companies can provide the debt relief options they promise when they have a lot of debt with constant collection calls.

The answer is yes. It is possible to get out of debt with the help of debt settlement companies. Nevertheless, it goes beyond contacting the 800 number on the ads or doing an internet search for a reliable, trustworthy agency. It is important to research which debt relief company offers the services you need before choosing one.

What is Debt Settlement?

They want their money from credit card companies and lenders. It may be difficult to repay if you are in a financial bind and are unable to pay those balances. The role of debt settlement companies comes into play here.

You can work with these companies, sometimes called debt relief companies, in order to resolve your creditor and lender problems. You can reduce the balance, decrease fees, or lower interest rates to resolve the issue.

Reputable debt settlement companies maintain long-standing relationships with industry lenders and creditors, so it is possible to get a fair settlement as quickly as possible. This may allow you to avoid declaring bankruptcy as a last resort to clear your debt. Lenders and creditors may also participate if there is no need to pursue lengthy debt collection processes.

The important thing to remember, however, is that creditors and lenders have no legal obligation to help you. Researching and digging through various debt relief companies is necessary to identify a reputable company. It is important to make sure that you receive a fair deal and to protect yourself from scammers and bad actors.

How Does Debt Settlement Work?

You should first contact the creditor you owe money to either them directly or a debt collector representing them to inquire about your options for repayment. Depending on the terms of your agreement, creditors may be willing to accept a reduced lump sum in exchange for forgiveness of the rest of the debt.

Debt settlement companies may ask you to cease payments to increase their negotiating leverage temporarily. In some cases, this may be the best option, even if it hurts your credit rating or if you are already unable to pay your bills entirely. This can result in a lawsuit or further damage to your credit rating.

An agreement is then negotiated between the debt settlement company and creditors, aiming to reduce the debt amount by as much as possible. It depends on the terms of the settlement whether you would make a lump sum payment or monthly payments.

Your credit score will be negatively affected if you pay less than you owe through debt settlement. Nevertheless, it’s a better option than ignoring the debt entirely for a short time.

What are Debt Settlement Companies?

Debt relief or settlement companies promise to renegotiate, settle, or in some way change the terms of a creditor’s or debt collector’s debt. It can be risky to do business with these companies.

There are a number of debt settlement companies out there that claim to be able to negotiate with your creditors to reduce how much you owe them. These companies often refer to themselves as “debt relief” or “debt adjusting” companies. Working with an independent credit counselor, as well as negotiating directly with a creditor or debt collector, are all options you should consider. 

What Do Debt Settlement Companies Do?

A debt settlement company negotiates with creditors so that the debtor can settle the debt acceptably. The company aims to save a debtor money by reducing the amount of principal he or she owes and securing lower interest rates as well. It differs greatly from debt management and debt consolidation, which reduce interest instead of principal debt.

It is possible to reduce debt by up to 50% with many debt settlement programs, so this form of debt relief can make a tremendous difference in the amount of debt to be repaid and the amount of time it takes to become debt-free.

Top 5 Debt Settlement Companies

Here are the Top 5 Debt Settlement Companies…

National Debt Relief

National Debt Relief is a New York City-based company founded in 2009. It is the best debt relief company in terms of overall debt settlement service, scoring highly in major categories.

There are low fees (between 15% and 25% of the debt that is successfully settled versus the total amount), and it can help with a variety of unsecured debts, including student debt. However, due to National Debt Relief’s high overall rating, it is our top pick for credit card debt settlement companies.

If National Debt Relief is unable to help you, it can refer you to partners who can help you with credit counseling and debt consolidation.

• Debt Settlement: Yes
• Debt Settlement Fee: 15% to 25% of settled debt
• Debt Management Plans: No
• Minimum debt Required: $7,500

Pros & Cons of National Debt Relief

Pros

• Credit card debt collection company at the top of the list
• The lowest fees among top-ranking companies for debt settlement
• Service for referring to other debt-relief options
• Most states offer this service

Cons

• There is no live chat option available
• The service is not available in Oregon, Vermont, or West Virginia
• Fees associated with savings accounts are not disclosed

Pacific Debt Relief

Pacific Debt Relief operates from San Diego and has been in business for more than two decades. We recommend Pacific Debt Settlement simply because it offers relatively low settlement fees, between 15% and 25% of the settled debt, but it has a slightly lower overall rating. According to the company’s website, charges are based on the total debt you enrolled. However, a company representative said they charge based on the amount of settled debt, which may be less expensive. 

Pacific Debt Relief has established quite a positive reputation among other debt relief companies based on online customer reviews. Pacific Debt Relief is rated an average of 4.7 stars out of 5 by nearly 1,500 people, and its Better Business Bureau (BBB) rating is similarly higher: 4.93 stars.

• Debt Settlement: Yes
• Debt Settlement Fee: 15% to 25% of settled debt
• Debt Management Plans: No
• Minimum debt Required: $10,000

Pros & Cons of Pacific Debt Relief

Pros

• There is no comparison of debt settlement fees between companies reviewed by us
• Company history dating back to 2002 (founded in 2002)
• A high level of customer satisfaction

Cons

• A debt of at least $10,000 is required
• It is only available in 28 states and Washington, D.C.
• Hours of customer support are limited.

Accredited Debt Relief

The Houston-based Accredited Debt Relief Company was established in 2011 in Houston, Texas. The company provides the same services as Beyond Finance, another company offering accredited debt relief. Our top customer service company offers many modes of customer support, including live chat, telephone, email, mail, and even fax services, and has good client reviews.

The company offers live chat support, but it is especially easy to call customer service, as it staffs its call center every day from 8:00 a.m. until 11:00 p.m. ET (on weekends until 10:00 p.m.).

Accredited Debt Relief customers may also use Beyond Finance’s mobile app, but it’s unclear whether they can use Beyond Finance’s as well. Some details about the companies need to be clarified. The company’s 4.9-star average rating (out of 5) on Trustpilot, however, suggests it’s doing something right judging from the nearly 6,000 reviews it’s received.

Accredited Debt Relief offers its services to just 30 states and the District of Columbia, including the most populous ones, such as California, Florida, New York, and Texas.

• Debt Settlement: Yes
• Debt Settlement Fee: 25% of settled debt
• Debt Management Plans: No
• Minimum debt Required: $10,000

Pros & Cons of Accredited Debt Relief

Pros

• Exceptional customer service 
• The reviews of customers are good
• Deals with different types of debts

Cons

• The minimum debt requirement is $10,000
• Fees on savings accounts are not transparent
• Available in 30 states plus D.C.

CuraDebt

This Florida-based debt relief company’s website has not been updated much since 1996, but it is worth investigating. It offers debt settlement for many types of debt, including tax debt, which other debt settlement companies do not handle. 

The company is ranked highest on our list of tax debt help companies, and it’s available in 50 states. The number of states that offer its broader debt settlement plans is half that of its competitor. 

CuraDebt offers limited customer support hours (Monday through Friday, plus Saturday), although live online chat is available on its website.

• Debt Settlement: Yes
• Debt Settlement Fee: 15% to 25% of initial debt
• Debt Management Plans: No
• Minimum debt Required: $5,000

Pros & Cons of CuraDebt

Pros

• Provides debt relief for a variety of debt types
• Provides live chat support
• An AFCC and IAPDA-accredited institution

Cons

• Twenty-six states and D.C. are the only places where it is available.
• A confusing and outdated website 
• It is not based on the settled debt but rather on the initial debt

Freedom Debt Relief

Based in San Mateo, California, Freedom Debt Relief has been in business since 2002. In its 20 years of operation, the company claims to have helped over a million people shed $18 billion in debt, making it one of the biggest debt relief companies in the world.

The company’s past customers have left helpful breadcrumbs about their experiences working with it, most of which are positive. The Freedom Debt Relief rating on Trustpilot is 4.6 stars based on over 41,000 reviews, and on BBB, it is 4.83 stars with over 100 reviews. The company’s customer satisfaction and reputation are almost as high as our top pick.

Freedom Debt Relief can help with many kinds of unsecured debts, including payday loans and private student loans. Since Freedom Debt Relief charges a percentage fee for successful debt negotiations rather than a flat fee per settled debt, its services can be expensive. The company does, however, have a “program guarantee” that limits some fees.

• Debt Settlement: Yes
• Debt Settlement Fee: 15% to 25% of initial debt
• Debt Management Plans: No
• Minimum debt Required: $7,500

Pros & Cons of Freedom Debt Relief

Pros

• Having a good reputation among customers
• A transparent fee structure
• Helps with a wide range of debts

Cons

• There are 8 states and D.C. where it is not available.
• Third-party monthly fees can be expensive.
• A record of violations of consumer protection laws

How Do You Choose a Debt Settlement Company?

Before making a decision, consider the cost, the amount you owe, and the company’s reputation.

The Costs

A debt-settlement company earns revenue by charging a percentage of the debt or settlement amount. There is a minimum cost of 14% and a maximum cost of 25%. The setup fee for the account and the monthly service fee are both possible additional costs. The extra costs could be burdensome if you already struggle financially.

A legitimate debt relief company cannot legally require upfront payment, so such a request is a red flag. It would help if you inquired about anticipated costs and fees before you sign anything.

How Much You Owe

Some debt relief companies don’t accept debts over a certain amount. The majority of their income comes from existing or settled debt, so you’ll have to have a minimum amount to make it worthwhile for them.

Generally, debt relief companies require a debt “minimum” of $10,000, although some can go as low as $7,500.

Complaints and Concerns

There are a lot of scammers and fraudsters in the debt settlement industry. Therefore, before working with any of these companies, it is imperative that you carefully investigate them. When a company contacts you first, you can be sure it is a scam.

It is also possible to determine the legitimacy of a debt relief company by reviewing third-party websites. Reviewers are likely to write negative reviews most of the time, and there are no glowing accolades in the debt relief industry. However, it is still possible to look for trends.

You may find many unhappy comments about the results and process. Additionally, complaints regarding a company’s customer service and resolution should be looked for often. If you keep hearing the same criticisms over and over, consider another company.

Records and Accreditations

An important factor to consider is the length of time that the debt relief company has been in business. There is a good chance that such a company is not a fly-by-night operation with dishonest motives if it has been in business for several years.

Similarly, the Federal Trade Commission maintains a list of debt settlement companies that are prohibited from offering these services. If you are still determining if a company is legitimate, it’s also a good idea to check this source.

Factors to Consider When Choosing a Debt Settlement Company

Many companies operating in the debt settlement industry could be more honest and efficient. When it comes to negotiating with your creditors, you should do some careful research before hiring a debt settlement company.

A debt settlement company can help you settle your debts. Here are some things to consider before hiring one. 

Fees

Debt settlement firms need to consider cost when choosing their services. A debt relief company typically charges a percentage of the debt involved in its services, 15% to 25%. Some companies charge based on the initial amount of debt, while others charge based on the settled amount of debt. A program setup fee and a monthly service fee may also be charged.

The amount of debt settlement fees could be substantial depending on the method of charging them. Consider a scenario where you owe $20,000 to your settlement company, with a 25% fee attached. A debt relief service would cost you $5,000 in this scenario. A 25% charge based on the settled debt means you’d pay $2,500 if you settled for $10,000, for instance.

There are also some savings to consider, even though it is an expensive option. Generally, a reputable debt settlement company will only collect payments from one of your creditors when it has successfully negotiated a lump sum settlement. Negotiating with creditors can be a time-consuming and frustrating process, even if you’re able to do so yourself. 

Minimum and Maximum Debt Requirements

The fees charged by debt settlement companies are usually based on a percentage of the amount of debt that they settle. Therefore, minimum debt requirements are common.

The amount of debt you have before being able to work with a debt settlement company can reach $10,000. There are also programs that accept customers with less debt than others, while others do not require any minimum debt. It is important to consider these details based on your financial situation and how much debt you wish to settle. 

When you have a large amount of debt, you face a different challenge. Although they usually cap the amount of debt they are willing to negotiate for clients at $100,000, some debt relief companies place a cap on the maximum amount of debt they will negotiate for them.

The Accreditation and Certification Process

The American Association for Debt Resolution (AADR, formerly named the American Fair Credit Council) or the International Association of Professional Debt Arbitrators (IAPDA) are typically good signs of a debt settlement company. A company can only receive accreditation from the AADR and IAPDA if it meets the industry’s best standards.12

Satisfaction and Complaints of Customers

In addition, you should research what previous customers have said about the debt settlement company you’re considering. Additionally, you should visit complaint databases, such as the Consumer Financial Protection Bureau’s complaints database, if you are looking for customer reviews from trusted third-party sources. 

Debt settlement companies may need a flawless track record when it comes to complaints. However, Trends such as unusually high complaint numbers or other concerns can be identified and detected.

Time in Business

Debt settlement companies with a long business history can help you narrow your choices. Debt relief companies that are brand new are less familiar with negotiating successful settlements than those that have been in business for a number of years. 

Time Frame

Any company you choose to settle your debts will likely take a long time to complete the process. A debt relief company builds up a war chest by collecting payments from you, which it then uses to negotiate with your creditors. When you begin the negotiation process, you may have money available to settle your debts. Next, the creditor and the debt settlement company will negotiate. 

A debt settlement process may take an average of 24 months or longer, depending on the debt relief company. Although every situation differs, in reality, all of them are the same. A debt negotiation time frame will be determined by the amount of debt you have and your ability to save money for negotiations. The speed at which creditors respond during the negotiation process cannot be controlled.

Additional Features

It might also be worth your while to consider additional benefits and features offered by some debt settlement companies. Working with a dedicated account specialist can reduce stress and simplify the experience. Also, you might be more inclined to use a service that offers longer customer service hours and more ways to get information about your account (e.g., a live chat feature, mobile app, dashboard, etc.).

Who Qualifies for Debt Settlement?

The debt settlement process is open to anyone with debt. Some companies may require minimum debt thresholds, but there are no standard guidelines.

How to Apply for Debt Settlement?

You must meet the following requirements in order to apply for a debt settlement program:

Find Companies That Can Settle Your Type of Debt:

• A debt relief company may not be able to settle debts resulting from payday loans, student loans, or medical bills. However, most programs can work with common types of consumer debt, such as high-interest credit card debt.
• It is important to compare fees charged between companies – most settle debts using a flat percentage.

Ensure You Meet Any Debt-Level Requirements:

• Some companies will not work with you if you have a certain amount of debt.

Choose a Company That Meets Your Needs:

• You should provide creditors with information such as lender names, account numbers, loan payment amounts, total loan amounts owed, and interest rates.
• The amount of your annual income, your Social Security number, and a copy of your pay stub are all necessary information.
• Ensure that the contract authorizes the company to negotiate with your creditors and to charge the fees for services rendered.

When choosing a debt settlement company, it is important to thoroughly research your options, both online and with friends and family. Make sure that the company you choose has a strong reputation, is not under sanction by any regulatory authorities, and has good customer reviews. Prior to selecting a debt settlement company, it is crucial to consider a company’s reputation, trustworthiness, and transparency.

Pros and Cons of Debt Settlement

Explore below the pros and cons of debt relief to determine if it is right for you.

Pros of Debt Settlement

• Reduced Debt: It is possible to reduce the total amount owed through debt relief.
• Avoiding bankruptcy: The effect of debt settlement on your credit may be negative, but it doesn’t have the long-term effects of bankruptcy.

Cons of Debt Settlement

• Credit Impact: The partial payment appears on your credit report as a negative item, which can adversely affect your credit score.
• No Guarantees: If you can’t settle your debt, you may have to file for bankruptcy. There is a possibility that creditors will demand the full amount from you and may even sue you for it. Your wages may be garnished, and they may be able to take money from your bank account if they win.

Alternatives to Debt Settlement Programs

You may also find that other programs or strategies are better suited to your needs when seeking debt relief:

• Consolidation of Debts: Through debt consolidation, multiple debts can be combined into one. This is often accomplished via a personal loan or balance transfer from a credit card. The consolidation loan or balance transfer credit card you choose may have a lower interest rate than the other debts you are consolidating, thereby simplifying repayment for unsecured debts such as credit card bills or medical bills. The benefit of debt consolidation is that it does not affect your credit score if you pay your new debt obligation on time with lower interest rates.
• Services Offered by Non-Profit Organizations: The goal of a credit counselor is to review your financial situation, give you advice on managing your money, and help you design a personalized plan to pay off your Debt. There are many credit counseling services available that are reasonably priced or even free.14 You can start learning about your options by visiting the National Foundation for Credit Counseling (NFCC).
• Plan for Managing Debt: A debt management plan creates a payment schedule with a lower monthly payment to your creditors. After signing up with the credit counseling agency, you will make a payment every month until your debts are paid off. You won’t be able to use any credit cards, but you’ll still be able to maintain your accounts. It is usually necessary to pay a fee for these plans.

FAQs

Is Using a Debt Settlement Company a Good Idea?

The idea of settling your debts for less than you owe sounds appealing. In some cases, debt settlement may be the best way to resolve outstanding debts, but it can also be risky. 

Debt settlement companies or DIY debt settlement cannot guarantee your creditors will agree to a settlement. Your credit score can be severely damaged if you stop paying your bills for the negotiation process in preparation for the negotiation.

How much does debt relief cost?

Companies that offer debt relief services usually charge between 15% and 25% of the total debt owed. Some debt relief companies work on a performance-based fee structure, meaning payment only occurs when a debt is settled. When deciding whether to settle your debt, you should consider how much these fees will cost you.

How Long Does Debt Settlement Stay on Your Credit Reports?

Credit reports may contain a notation when you settle a credit obligation for less than you owe. A “settled” status can negatively affect your credit score and may remain on your credit reports for up to seven years after the original delinquency date.

What Is the Difference Between Debt Settlement and Debt Consolidation?

You settle a debt when you stop paying your creditors and save up for a lump-sum payment after a period of stopping payments. Debt consolidation allows you to make one monthly payment at a lower interest rate by combining multiple loans into one. The minimum credit score for debt consolidation loans is usually fair or good.

Can I Buy a House After Debt Settlement?

A home loan application must meet a lender’s criteria for qualification. Credit score damage can result from late payments and settlement notations that appear on your credit report after debt settlement.

If your circumstances allow, you can sometimes buy a house even with bad credit. Additionally, you can improve your credit in the future if you’re not able to obtain a mortgage immediately after debt settlement.