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Young companies have very little experience in settling debts and may not have settled many at all. The company you chose should have been in business for at least five years and should have settled many millions of dollars in debts.
What do you charge?
The Federal Trade Commission has outlawed upfront fees so if a settlement company tells you that you must pay something upfront, run away. No reputable debt settlement company will charge you any fees until it has settled your debts. Before your sign an agreement with a debt settlement company be sure to ask for a full disclosure of is fees in writing.
Do you pay my creditors monthly?
Honest debt settlement companies do not pay your creditors monthly. As noted above they settle debts in the form of lump sum payments. If the settlement company says that it will be making monthly payments to your creditors, big red flag!
Will this affect my credit report?
The correct answer to this is, "yes." Debt settlement will impact your credit report and credit score. If a debt settlement company claims anything to the contrary – another big red flag.
When will you settle my first debt?
When the debt settlement company will be able to settle your first debt will depend on your creditors and the amount of money you can save for your settlements. The more time the debt settlement company takes to settle your debts the greater are the chances you will end up getting sued over one of them.
How long will this take and how much will it cost?
It's really impossible for a debt settlement company to tell you how long it will take to settle your debts. However, under the new rules for debt relief the company should be able to give you an estimated time frame based on the amount of debt you owe and how much you are able to save for your settlements. Most of the leading debt settlement companies operate on a fee basis, which varies from 15% to 25% depending on the size of your debt. Once the settlement company and you reach an agreement as to how much of your debt it will be settling it should be able to give you a very clear idea of what it's fee will be.
Where is my money while you're settling my debts?
Your money should be in an escrow account held by a third-party while your debts are being settled. This account should be FDIC insured. You must have control of the account and the ability to close it and get your money back without a penalty at any time. The best debt settlement companies offer a 100% satisfaction guaranty that you can withdraw from your program at any time for any reason and not be charged a single cent.
Are there alternatives to settling my debts?
A reputable debt settlement company will explain to you that there are alternatives available to debt settlement. For example, it will tell you if you would be a good candidate for a debt management plan. It should also not discourage you from talking with a bankruptcy attorney about that option. If the debt settlement company discourages you from looking into other options that's another big red flag.
When will I hear from you?
Reputable debt settlement companies practice transparency. This means they will keep you in the loop with updates all along the way as to the status of their negotiations with your creditors.
Does debt settlement have tax consequences?
The answer to this is also "yes." Lenders are required by the IRS to report any settlement of more than $500. However, many lenders simply do not do this. Plus, if you can show the IRS you are insolvent you'll probably get those taxes waived.
How do you calculate my estimated savings?
Let's assume for the sake of the example that the debt settlement company says it will save you 50% of your debt. It must base this estimate on the total amount of debt being settled plus any fees or interest that accumulate after you enroll in its program. Plus, they must include the fees that you'll pay before they calculate your savings. If the debt settlement company doesn't provide a complete disclosure of the savings it estimates it can get you, tell it so long.
What debt settlement companies may not tell you
Unfortunately, there are some things that the less than reputable settlement companies may not tell you. The following video discusses five of them.