Debt Settlement: What Should I Look For?
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Debt Settlement

A Bankruptcy Alternative to Manage Debts

For some consumers, filing for bankruptcy protection is the best option to get out of debt. One bankruptcy alternative that can be effective is debt settlement, which involves paying a debt settlement agency to negotiate with your creditors to reduce the total amount you must pay. But not all debt settlement companies are created equal. In fact, unless you know what to look out for, you could end up in more debt than when you started.

Before Visiting a Debt Settlement Agency

You may be wondering how to determine whether debt settlement is right for you. If you'd rather have legal advice on your next financial move, you may want to consider meeting with a local bankruptcy lawyer for a free case evaluation.

If your bankruptcy attorney suggests debt settlement, he or she may then be able to direct you to a trustworthy agency in your area. If, however, you decide that bankruptcy just isn't for you, we can help you get in touch with a debt settlement company.

What to Watch For With Debt Settlement Companies

Once you've selected a debt settlement agency to visit, be prepared to assess the situation with an open mind. Don't feel like you have to work with the first agency you find in the phone book - it may not offer you the best deal. When you first visit the agency, here are some "red flag" behaviors that should alert you that this company is probably not working for your best interest.

  • Forcing the contract: While signing a contract in and of itself isn't a bad thing, the terms of the contract may be. If a representative discourages you from reading the entire contract, or if he tries to "explain what it says" to "save you time," watch out. NEVER sign a contract without reading it, especially if your finances are on the line.
  • Promoting default: If a debt settlement rep suggests allowing one or more of your accounts to go into default, do not work with the agency. Some companies insist that they cannot negotiate with creditors until an account is in default, but this is untrue. Defaulting on payments can cause serious damage to your credit score, wage garnishment, home foreclosure and more.
  • Discouraging direct creditor contact: If a debt settlement firm suggests that you don't contact your creditors directly, be wary. Direct contact with creditors is an effective way to address your debt issues, and suggesting you refrain from contact can indicate questionable methods.
  • Demanding unreasonable upfront fees: This company is supposed to be helping you get out of debt. If you're asked to pay enormous fees, if you're asked to pay fees before the company will help you in any way or if you're otherwise uncomfortable with the payments outlined, walk away. Consult with a trusted resource before making a final decision.
  • Pressuring you to sign up: Ask yourself why a company would do this - because it loves helping people in distress? Probably not. Any company that pressures you to sign up right away is likely arranged so that it will make a large profit off you and maybe not offer you much in return.
  • Rushing the consultation: If a representative is trying to sign you up without really listening to you or analyzing your situation, don't bite. Effective debt settlement agencies will help create a program that will work for your specific financial needs.

Getting Out of Debt

Walking out of a consultation may be difficult, especially if the sales representative is friendly. But remember: your goal is to eliminate your debt, not to make a salesperson's job easier. Take notes, ask for literature about the program, and get a second opinion before signing a contract.

Pleasing a representative by agreeing to a program may seem easier in the short term, but remember that you're there to help yourself - if the agency is legitimate, it should understand and encourage your desire to do your homework.

The above summary of debt settlement agencies is by no means all-inclusive and is not legal advice. For the latest information on debt settlement, speak to a bankruptcy attorney in your area.

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