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Updated on Wednesday, June 10, 2015
If you are in debt and it feels like it is getting out of control, you may be at a point where you are ready to reach out for help. If you do, use caution and common sense. There are some upstanding companies looking to help you, and some predators looking to take advantage.
What Debt Solutions Companies Offer
Debt solutions companies exist to help you manage your debt and get out from difficult debt situations. Many people find themselves struggling to make ends meet after paying credit cards, student loans, and medical debts, and a debt solutions company may be able to help reduce, eliminate, or consolidate some payments to save cash each payday and save money in the long run.
Quality debt solutions companies will help customers understand and evaluate their debt, income, and expenses and use that information to plan a series of steps to remove the burdens of the debts through a combination of budgeting and debt payoff.
In some circumstances, if the debt load is beyond your ability to pay, the company will suggest debt consolidation or debt forgiveness to help you get out of debt. These options have serious ramifications to your credit, so they should never be taken lightly.
Debt consolidation is taking out a new loan to pay off existing loan balances. Credit cards generally have very high interest rates, typically over 20% per year, and consolidating outstanding debts to a lower interest loan can help simplify payments and save money. However, people with high revolving debt balances may have trouble qualifying for lower interest debt consolidation loans, so this is not always an available option.
Debt forgiveness is another option, and a near last resort for people with a serious problem managing their debt. In this case, a debt solutions company will reach out to lenders to ask for a reduction in outstanding debt balances in exchange for a lump payment or lower monthly payments. When a lender agrees to this, the account will show that a settlement was reached on your credit report, which will hinder your ability to receive new credit for seven years or more. In this case, borrowers may receive a debt reduction of 50%-60%.
As a last resort, some borrowers file for bankruptcy protection. Bankruptcy courts can lower or eliminate debt balances, but a bankruptcy leaves a bad mark on your credit report for ten years and may disqualify someone from any new credit or debt, such as a mortgage loan to buy a home.
What to Look For
If you are in a situation where you could benefit from the services of a debt solutions company, it is important to hire a company that will put your best interest first and stand by you as you work to get debt free.
First, any interaction with the company should leave you feeling like you are making the right steps. If you are being pressured to do something that makes you uncomfortable, you are not working with the right company for your needs. A debt solutions company should treat you with respect as you work through your difficult situation. They should not add more stress on top of your already stressful time.
Debt solutions and debt settlement companies offer a variety of fee structures. When choosing a company, the fees should be very clear and easy to understand. Do not agree to anything you do not understand or ambiguous.
Also look for online reviews. You can look to the Better Business Bureau to see if the company is highly rated or riddled with negative comments and complaints.
While there are good debt solutions companies out there, the industry has garnered a bad reputation thanks to the many predatory agencies looking to profit from American’s bad fortunes. Here are some red flags to lookout for when choosing a debt solutions company.
- Pushing for bankruptcy – If the first thing that happens out the gate when you speak to the company is a push towards bankruptcy, take a step back and evaluate if this company truly has your best interest in mind. Bankruptcy is the right choice in some situations, but should never be the first option discussed and you should never be pressured into doing so quickly.
- Quick fix solutions – There is no quick fix to debt problems. Outside of medical bills, people rarely get into crippling debt quickly, and it takes time to get out of debt too.
- High pressure – Your debt solutions company is not a used car lot. If you feel like you are being pitched by a seedy car salesman, take your business elsewhere.
- Unclear fees – You should know and understand up front exactly what you will expect to pay for debt solutions services. If the fees seem high, call around to a few companies to compare.
- Bad reviews – Companies get bad reviews even with the best of intentions from time to time, but a trend of more bad reviews than good ones shows that more people have had negative experiences than positive ones.
Try to Solve It Yourself First
Before you look for help solving your debt situation, look in the mirror and you will find the number one advocate that will help you get out of debt. You care more about your situation than any business, so put in the work to get yourself on track to getting out of debt before calling for help.
If you have higher monthly expenses than your income, look at your spending habits and get on a budget that leaves room for debt payments.
If you have several high interest rate loans, look for consolidation options on your own through a personal loan.