You’re way deep in unsecured debts that you have no way to pay on your own. You’d like to avoid bankruptcy but are unsure of your options. You may be a good candidate for debt relief, through which you may be able to settle your debts faster than you ever would on your own. But are debt relief companies a good option? They are, but let’s see whether they’re a good fit for you.
Debt Relief
Also called debt settlement, debt relief is a financial strategy in which a debt relief company, on your behalf, seeks to get your creditors to accept a partial payment to settle your entire debt. Why would a creditor do such a thing? Good question, since they, like you, want every dime owed them. However, they know that if they don’t accept, your next move will probably be bankruptcy, which wouldn’t bode well for them.
What’s the Debt Relief Process?
After a consultation about your situation, a debt relief company such as Freedom Debt Relief will work with you to figure out how much you can comfortably put aside each month toward debt repayment. But rather than pay your creditors directly, you will deposit the cash monthly into an escrow-like account. When you’ve saved enough, the company will attempt to use the funds as leverage to get each of your creditors to accept a one-time payment in full to settle your obligation.
The process takes between two to four years, depending on your debt load, after which you’ll pay the company. Fees vary, but most companies charge between 15% and 25%, either of the original debt total or the amount you agreed to pay creditors. Usually, a creditor will agree to accept around half of what you owe, although that can vary as well.
What About My Credit Scores?
The process of debt relief will hurt your scores – temporarily. Once you’ve settled your debts and have begun rebuilding your credit, your scores will rebound. And let’s face it: your credit scores have been less-than-stellar for some time now.
What Kind of Debt is Accepted?
It depends on the company, but most unsecured debts – those not attached to collateral — are usually eligible. Debt from credit cards is the kind most often enrolled, although obligations from medical bills, personal loans, retail charge cards and other unsecured lines of credit are also usually accepted.
What About Scams?
Yes, the field does seem to attract its share of nefarious actors who are more eager to take your money than to help you regain solid financial footing. Speaking of taking your money, did you know that it’s against federal law for a debt relief company to charge you before your creditors are paid? Well, it is.
Other red flags include pressure to enroll and breathless “guarantees” that all your debts can be settled for mere pennies on the dollar. While debt relief successfully helps scores of people like you, there are no certainties in negotiations, particularly when it comes to how much you can save.
Before you sign on with a company, it’s a good idea to run its name by your state’s attorney general office to see whether there have been consumer complaints.
So, are debt relief companies a good option? They are if you hope to avoid bankruptcy and can’t see yourself repaying your debt on your own. If you do choose the debt relief route, we suggest you go with Freedom Debt Relief, which offers not only the experience, but the reputation and credibility you want in this field.
