If you are unsure about whether your debt settlement program is doing you any good, you may want to reconsider your participation. Some creditors are willing to work with debtors individually, or you may be able to get help that is more effective from a credit counselor or a bankruptcy attorney.
Debt Settlement Firms
Debt settlement firms contact your creditors in hope of negotiating a reduction in your debt so that you can settle your debt for less than you owe. If you don't have the cash to do this, some debt settlement programs encourage you to stop paying your debts and put your monthly minimum payments into an escrow account. Once you have enough money saved to settle your bills, the debt settlement company approaches your creditors with a settlement offer. If your creditors accept the offer, the debt settlement company uses the funds in your escrow account to make the appropriate payments. The problem with this approach is that by not paying your bills, you damage your credit and often end up with higher interest rates and fees that can cost you as much as any discount that a debt settlement company can hope to get for you.
Negotiating Your Own Debts
If you are unable to keep up with your debt payments, contact your creditors yourself. Explain your situation and see if you can settle your debts on your own. Creditors generally don't want to go to court and they would rather get something than nothing, so if you can show them that your financial situation is dire, you may be able negotiate a settlement on your own. Unfortunately, if you are already in a debt settlement program and haven't made your minimum payments in a while, your credit card companies may have already sent your accounts to a collection agency. However, collection agencies may be willing to work with you, and may even be more amenable to a settlement than the credit card companies.
Getting Your Money Back
In 2009, the Federal Trade Commission passed new rules that regulate debt settlement companies. If your debt settlement firm sells its services over the phone and is a for-profit corporation, your escrow account must be held at a federally insured bank or financial institution. You have the right to access that account and take your money back at any time. If you plan to approach your creditors directly, retrieve your money so that you have cash when you approach them. Under the FTC rules, the debt settlement company cannot charge you any money until it negotiates one debt on your behalf and you make at least one payment to that creditor.
Alternatives to Debt Settlement
Both credit counselors and bankruptcy attorneys can give you advice on managing your debt. A credit counselor can help you with budgeting and learning new spending habits. The credit counselor can also arrange a debt management plan that lowers your minimum payment amounts and interest rates so you can pay down your debt over time. If your situation is serious, a bankruptcy attorney can help you figure out whether bankruptcy is a better option for you.
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