How to Pick a Debt Settlement Company

It can be stressful to make one more decision as you're struggling to juggle your monthly bills. It's at this time, though, that you might be considering whether or not to sign up with a debt settlement company. Debt settlement companies negotiate with your creditors in an attempt to lower your debt and the interest rate you're paying on it. Debt settlement companies often charge you a fee for their services, making them competitive as they seek your business. There are a number of things you should consider before choosing a debt settlement company.

Instructions

1

Ask how much the companies are going to charge you before settling your debt. Some debt settlement companies ask you to stop making your payments to your creditors and to send those payments instead to them. They claim a percentage of that money as their own, calling it a "service fee." This means that you may be making payments to the debt settlement company for months before it has enough of your money to negotiate with creditors. Find out up front how much the service fees are and what the company's refund policy is if it's unable to negotiate a settlement.

2

Check with the Better Business Bureau. Debt settlement companies pop up and go out of business on a regular basis. Find out if there are any complaints against the company you're considering signing with, and if so, what those complaints are. Remember that if you ask a representative of the settlement company about those complaints, she will be equipped with an answer to explain them away.

3

Ask about monthly fees for using the company's service. Keep in mind that these fees are going to become another obligation for you to cover. Look for a company with fees that are low enough to justify using the service. Avoid any debt settlement company that charges commission.

4

Find out what the company's alternative plan for your case would be. A legitimate debt settlement company knows that it can't benefit everyone who calls and will have another option available for you if it can't lower your payment enough to make it worthwhile. Look for a settlement company that offers budgeting classes and other supportive services.

5

Make sure the company tells you about any lingering financial responsibilities. As of 2011, the Internal Revenue Service considers any debt that is settled or forgiven for $600 or more as income. In addition, using a debt settlement company can negatively impact your credit for years to come. Any reputable company will explain both of these points to you in detail.