Debt Settlement Industry

The debt settlement industry works with millions of creditors on a daily basis. Companies in this industry help consumers by negotiating a settlement with a creditor. While this can help consumers get out of debt faster, it can also be very damaging to their credit history over the long-term.

Debt Settlement

The process of debt settlement involves agreeing to pay a creditor less than what you owe. Creditors will often take less than the total amount of your balance if you are willing to pay a lump sum. The creditor then writes off the loss and takes your payment to settle the account. You could potentially settle the debt on your own by negotiating with the creditor directly or you can hire a debt settlement company to do it for you.

Credit Impact

Although debt settlement can help you save a large amount of money on your debt, it can also hurt your credit. With this process, your creditors will most likely report it as negative feedback on your credit report. Your account will be noted as "settled" and other creditors can see this on your report. This can stay on your report for as long as seven years and it can hurt your chances of getting any other type of credit.

Fees

One of the issues of using a company in the debt settlement industry to help you is the cost. These companies do not perform this service for free and they will most likely take a large fee in exchange for their help. These programs typically charge a percentage of the total amount of debt that is settled. The percentage could be as high as 18 percent with some companies in the market.

FTC Regulation

In the past, regulation of this industry was questionable and many consumers were taken advantage of. Due to these issues, the Federal Trade Commission made rules to govern the industry closer. One of the most important rules is that these companies are not allow to misrepresent themselves or their services. For example, they cannot say that they offer a government program or offer some type of other debt solution. They also do not charge any up-front fees for their services. The services have to be completed before the company can charge the customer any fees. These companies may also request that customers keep their funds for the settlement in a separate dedicated account.