If you’ve found yourself in a situation where you are considering debt relief counseling; before you jump in head first, slow down.
Take a few deep breaths and consider these tips for properly vetting debt relief providers which will lead you to a reputable firm. Remember, there are people out there who are all too happy to feast upon your misfortune. However, there are also a lot of people out there who are sincere about helping you get out of debt.
Asking the following questions will help you find them.
Is Debt Relief Right for Me?
If you find yourself sitting across a desk from someone who goes straight into signing you up for a program without evaluating your situation, leave immediately. Reputable firms take the time to go over your finances and determine the best course of action you should take – and it isn’t always debt settlement.
Sometimes it can be loan consolidation or credit counseling. In extreme cases it might even be filing for bankruptcy protection. According to Andrew Housser, a member of the board of the American Fair Credit Council, gaining a clear understanding of these points up front can save you a lot of anxiety.
How Long Has Your Organization Been Around?
You’re looking for a company with an established track record of at least 10 years or more and accreditations by organizations such as the American Fair Credit Council and the Better Business Bureau. Longevity means they are likely to have relationships with a wider range of creditors, while accreditations say they can be counted upon to adhere to high standards of conduct.
How Are You Compensated?
Federal law prohibits debt relief companies from asking you for any money at all until they settle a debt on your behalf. Further, you should be presented with a full explanation of the costs before you sign. In most cases, fees are based upon the amount of debt you have outstanding – which is another reason nobody can tell you what’s what until they’ve evaluated your situation.
Can You Guarantee This Will Work?
Anybody answering that question in the affirmative is not to be trusted. Only your creditors can decide whether or not to accept revised terms. Yes, they will in most cases. After all, getting something back is better than nothing at all. But they won’t always agree to settlements. Reputable firms know this and disclose the fact.
Will My Credit Score Take a Hit?
Anyone answering “no” to that question unequivocally should be regarded with suspicion. Creditors routinely report settlements to the major credit bureaus. So yes, your credit record will reflect an agreement was reached in some way, and this can lower your score.
How Does the Process Work?
The carrot the debt settlement industry dangles in front of creditors is a guarantee of payment. In a nutshell, they tell your creditor you’ll pay the loan if they’ll agree to reduce the amount you owe. Figuring it’s better to work with you and get something rather than saying no and forcing you into bankruptcy, they’ll sometimes agree to accept a lower amount.
However, you’ll have to build up the fund from which those payments can be made. To do so, you’ll make deposits into an FDIC-insured escrow account rather than sending money directly to your creditors. This can trigger collection calls as well as lawsuit threats. You’ll need to be psychologically prepared to deal with those. Once a settlement has been arranged to your satisfaction, the company will start making payments to creditors on your behalf and collect its fee.
Are There Tax Consequences?
The short answer to this question is yes. However, it can sometimes depend upon the amount forgiven and the nature of the company with which you reach the agreement. Some report to the IRS, others do not. Still it’s in your best interest to err on the side of expecting the settlement to be reported.
When it comes to properly vetting debt relief providers, asking these seven questions will help you find an honest company. Taking the time to investigate will help you avoid making a bad situation worse.
