How To Understand a Credit Debt Settlement

You have probably seen the commercials for credit debt settlement companies and are considering calling them for help to reduce your debt. However, you need to enter settlement with caution, since some credit debt settlement companies use unethical procedures that only harm their clients.

Step 1

A credit debt settlement company strategy is often for their clients to stop making payment to their creditors, and send their regular payment instead to their agency. Then, they issue the payment to the creditors. In credit debt settlement programs, the agency will require the debt to be paid in full with the plan that they set up with the creditor. A reputable credit debt settlement company offers free and low-cost services to organize and plan your budget and help you improve your credit rating. You will find that with most reputable credit debt settlement companies, their services are usually free because legitimate credit debt settlement services are non-profit agencies.

Step 2

Often the credit debt settlement company tries to negotiate on behalf of their clients to reduce the amount they owe and will keep the payments received until a settlement is reached with the creditor. This tactic results in late payment to the creditor and their client credit report in turn shows delinquent, which reduces their credit score.

Step 3

Credit debt settlement companies have had a great deal of problems over the past decade or so. Thus, the Federal Trade Commission (FTC) has a warning statement on their website urging consumers to choose licensed credit debt settlement services instead of using unlicensed companies.

Step 4

Credit debt settlement companies charge extremely high fees for services and come with no guarantee. So, you could pay the fees and still not receive a debt reduction. In fact, you can end up in more debt because of the time it takes for them to negotiate an agreement. You most likely will incur additional late fee charges.

Step 5

Often the best way to resolve a debt problem is to contact the creditor and work out a payment arrangement. Most creditors will set up a payment arrangement so you can meet your financial obligation, or visit a credit debt settlement agency.

Another aspect to consider about credit debt settlement companies is the legality of the company. There are some that will take their client's payment, and a debt settlement will never appear. So, if you choose one of these agencies, make sure you have everything in writing. Contact the Better Business Bureau to see if they are in good standing, and request a copy of their business license before entering into any credit debt settlement agreement.

Tips

In the end, communication is the key. Before you choose a credit debt settlement agency to put to work, keep in mind that your voice is the first line of defense to help dig yourself out of debt. First call the companies which you owe money to, because some offer repayment or hardship plans. Many credit-card companies may lower your interest rate by you just asking them to. If you start to fall behind, don't let it get out of control. Remember you are not alone! In today's economy, millions of people are struggling, and it is ok to ask for help.

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