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7 Warning Things You Need to Know Before You Choose A Debt Settlement Firm

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Have your debts spiraled out of control and are you contemplating hiring a debt settlement firm? No doubt, it is a good idea, but remember that even though debt consolidation firms do a lot of good, they are still unregulated. You must be aware of the numerous pitfalls that you may experience when choosing the services of a debt settlement firm.

Review your position and determine whether you really need a debt settlement firm to help you. If you do then make sure you do not get trapped by the following issues in your quest to find the debt settlement firm :

1. Fraud Debt Settlement Firms

The usual worry while choosing any service provider is pertinent with debts settlement firms too. Beware of the firm that you are choosing for handling your debts and the debt collectors. 

7 Warning Things You Need to Know Before You Choose A Debt Settlement Firm

There are numerous instances of firms charging a huge initial payment for their services and then disappearing without providing the services. Other instances of fraud firms are when debt settlement companies are incapable of handling your debts because of under skilled staff.

Be sure about the firm that you are choosing for your debs settlement problem. Check the firm’s credibility before going ahead with the agreement. If possible, pay a visit to their office and look for yourself. If you sense something funny about their operations, then trust your instincts and back out. Also, ask existing or past customers about their services and performance. 

You can check numerous online forums and customer review websites to know about other people’s experience when they decided to seek the services of a debt settlement firm. The last thing you would want to do is have a hefty amount gone down the drain when you are already deeply in debt.

2. Damage To Credit Score

Be informed that no matter how much legal the services of a debt settlement firm are, resorting to it and using it to settle your debts for lesser than what you owed will be seen in very bad light by the credit reporting agencies. This act may affect your free credit score severely. If the amount is rather small and payable by your income, you must prefer paying it off rather than going to a debts settlement firm. Yes, the damage will be lesser than completely ignoring paying off the debt, but then also you shouldn’t be taking chances.

3. Lawsuits By Creditors

Banks and other creditors are growing wary of debt settlement firms robbing them off their money and have started taking steps against it. Most creditors are immediately filing lawsuits against the defaulter, thus closing alleys of resorting to debt settlement firms. This way you face the risk of having a wage garnishment or bank account seizure issued against your name. 

7 Warning Things You Need to Know Before You Choose A Debt Settlement Firm

Creditors also tend to do this the moment your appointed debt settlement firm gives them a call! Be prepared to face these ramifications in case you are thinking of going ahead with hiring the services of a debt settlement firm.

4. Taxes On The Difference

The federal government considers the amount of money saved from hiring a debt settlement firm as income and will tax it accordingly. This amount is the difference between the amount actually owed and repaid after the debt is settled and can be calculated using a tax estimator. But the fee of the debt settlement firm is not adjusted with the differential amount and must be paid once the debt is settled. Plan your debt settlement margin accordingly!

5. Lack Of Federal Regulation

Remember that the government does not usually regulate these debt settlement firms and only some states that have certain legislative regulations. But you will hardly find any debt settlement firms in those states. Although there are laws in the pipeline to bring such firms under the FTC regulation, for the time being, you are on their own. So, progress with caution!

6. Cost Of Their Service

Something that will help you save hundreds and thousands of money will not come cheap at the least. Be prepared to shell out a commendable portion of your debt to the debt settlement firm for their services. The fees of these firms usually run into 5 figure amounts. You can always device a payback scheme for their services where you can choose to pay off the fees over multiple months in the form of EMIs.

7. Amount Of Time

Don’t expect speedy settlement of your debt within days of appointing a debt settlement firm for their services. Usually the process of debt settlement takes one or two years to be completed. You need to be patient and committed to the cause in order to reap the benefits.

What Alternatives Do You Have?

Have these 7 problems of appointing a debt settlement firm disarmed you and made you change your mind against appointing one? You can always look for other available options in case you are facing humungous amounts of debt that you are unable to payback. Many financial experts and tax lawyers are of the opinion that filing for bankruptcy is a far easier and cheaper option than going for debt settlement.

7 Warning Things You Need to Know Before You Choose A Debt Settlement Firm

This way you will be able to have the whole issue handled in far lesser time than debt settlement usually takes. The fees of filing for bankruptcy are also meager compared to the fees of debt settlement firms. Another plus point of filing for bankruptcy is the fact that you will be able to make a fresh start, from scratch. 

But whether you want the cheaper or the faster option is up to you. The cheaper option, which is filing for bankruptcy, has long-term consequences. The item stays in your credit report for as long as 10 years, damaging your credit score. But, if you choose the faster option, which is debt settlement, with care, you can be debt free fast and try to re-build your credit again.

Getting out of debt can be a very harrowing experience but one, which can be controlled, if handled properly and efficiently. Review the options available to you and device a course of action after talking to legal and financial experts in order to make an informed decision.