Debt can make consumers feel like there’s a constant cloud hovering over their head, always threatening to unleash a downpour of stress and negative financial consequences. Living in this state is stressful, especially as it’s much more challenging to get out of debt than it is to get into it. It’s only natural for people to want to explore all their options when it comes to alleviating debt and getting their financial journey back on track.
Debt relief, like any other solution, comes with associated pros and cons. The best way for consumers to empower themselves is to do their research ahead of time. Here are four things you ought to know about the debt relief industry—more specifically, debt settlement—before you make any major decisions.
#1: Most Debt Relief Companies Require a Minimum Balance
Debt relief is an option for consumers with significant debt. Thus, your eligibility depends on the nature and amount of your outstanding balances. Some settlement companies set the bar at $5,000. Others require at least $7,500 worth of debt to accept clients. Yet others require a minimum of $10,000 in debt. Many programs also set a minimum for individual balances to be settled, often $500.
Consumers on the borderline can use these minimums to assess which debt relief partner would be a good fit for their needs. People with significantly less debt should explore other options besides settlement, while people carrying higher amounts of debt will likely be a candidate for multiple programs.
#2: Many Creditors Are Willing to Negotiate
At first glance, you might think of debt settlement as an all-or-nothing proposition in which you’ll be on the hook for every penny you owe.
Debt settlement actually hinges on the fact that many creditors are willing to negotiate. Why? Because when consumers cease to repay their debts, they stand to lose money. At least a negotiation means creditors will receive some payment, even if it’s only a portion of the original balance. So, there is an opportunity for consumers to negotiate down their principal interest, provided they approach negotiations in a productive way.
Negotiations depend on amassing a sum of money before they take place. That way, they can offer creditors a single payment or a series of payments in a timely manner. This is why working with a debt settlement company involves paying into a designated bank account until you reach a certain threshold; this amount becomes instrumental in making the negotiations fruitful.
#3: Reputable Debt Relief Companies Are Transparent
Any debt relief company worth its weight in salt will be transparent about a number of things: its track record and leadership, to start. Look up genuine customer reviews for added social proof by searching company-related terms like “Freedom Debt Relief review.” Learn more about when and how each company in question began. What are its values? What role does its leadership play in shaping the organization? Some CEOs, like Andrew Housser of FDR, are very hands-on, offering financial advice and thought leadership as well as growing the organization.
The main takeaway here is that it’s very important to do your homework so you can make an informed decision. Here’s what the Federal Trade Commission recommends in terms of debt settlement: “Find out what services a business provides, how much it costs, and how long it may take to get the results they promised. Don’t rely on verbal promises. Get everything in writing, and read your contracts carefully.”
#4: Debt Relief Companies Can’t Collect Advance Fees
It’s worth noting that the FTC banned debt settlement companies from collecting fees up front back in 2010. This is a red flag, so steer clear of anyone who tries to solicit payment before delivering agreed-upon settlement.
Remember these four things about the debt relief industry as you’re finding the best option for your finances.