Finding the best debt settlement plan is difficult, as debt settlement is a complicated financial solution to an unfortunate situation. Engaging in debt settlement usually means having your credit score drop dramatically and paying large fees to a company that might not perform any useful service.
Credit Score
Some debt settlement companies might tell you they will keep your credit scores from being reduced. This isn't true. Any debt settlement plan will reduce your credit score and the best settlement companies will acknowledge this. On the other hand, you can instead work with what's called a debt management program to try to keep your credit scores intact or minimize the damage.
Debt Settlement
Some creditors will make a settlement offer when you fall behind on your payments. They usually require you to place money into an escrow account and they often accept less than you owe. While this might sound good, the problem is you must be behind in your payments before receiving such an offer. If you're current, there's no point in trying to get a debt settlement in place. Also, you can often work out a settlement by contacting your creditor directly, thereby saving an unnecessary expense.
Debt Management
If you engage in a debt management program instead of using a debt-settlement company, you'll still have to pay your entire debt, but your credit score will suffer less. In addition, many credit managers have experience with helping you to keep and stay on a budget, which might prevent future debt problems.
Regulations
Under rules which went into effect in October 2010, debt settlers can no longer attempt to collect upfront fees. Instead, they are paid after a settlement is completed. In addition, caps were put in place to prevent the companies from charging high fees. And the companies can no longer engage in advertising that makes bold claims that cannot be proven.
Exceptions
Debt settlement cannot be used on certain bills, including electric bills, water bills, alimony, child support, car payments, house payments, student loans and tax bills. Debt settlement only works with credit card companies and other businesses.
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