What Is Debt Resolution?

For some people, debt is a financial fact of life. Sometimes, circumstances occur and financial setbacks take place. When this happens, debt resolution is an option. If you use a third-party debt resolution company, the company will contact credit card companies on your behalf and work on getting reduced rates. However, some debt resolution companies are not reputable, so you need to exercise caution before using their services.

Definition

Debt resolution, also known as "debt settlement" and "debt negotiation," can reduce your overall debt. A debt resolution company contacts your creditors and negotiates a level where you can pay off a percentage of your overall debt. However, the payment goes to a debt resolution company rather than to the creditors, meaning your credit score may sustain hits.

Companies

Some debt resolution companies claim to get your debts resolved or removed, in exchange for an upfront fee. Be wary of these companies, as there are some with a poor track record. Before doing business with any debt resolution company, consult the Better Business Bureau to find out if their customers are satisfied. You can also locate a business at the National Foundation for Credit Counseling website (see Resources).

Deception

Some companies use deceptive practices to misled consumers. An ad might make it seem like a law firm will be representing you when you are trying to resolve your debt, but the actual company taking your money might just be a "scavenger" company. These companies try to get upfront money to resolve the debt but have very little positive results. Reporting such companies to your state attorney general can result in the offenders facing criminal prosecution.

Self-help

Debt resolution doesn't require a debt resolution company. You can call your creditors and explain your financial situation to them. Include any pertinent information, such as medical expenses or loss of employment. It's possible the creditors will set up a payment plan for you or reduce or remove any interest and penalties you've incurred. Naturally, it's best to contact your creditors as soon as you know there are problems in meeting your financial obligations.

Budget

Following a budget helps keep you on your debt resolution track. Each month, in addition to paying off the minimum monthly debt to each creditor, pick one bill and aggressively work on paying it off. Attacking one bill at a time can get debt brought down quickly.