How to Choose a Debt Settlement Company

Choosing an ethical debt settlement company is absolutely essential for people who want to eliminate excessive credit card debt, medical bills and other miscellaneous unsecured liabilities. There are cowboys in every industry, but there are some highly competent providers of debt solutions that'll help to get your finances back on track.

What is a Debt Settlement Program?

A debt settlement company, also known as an intermediary, will negotiate with creditors to help you reduce credit card debt. They're able to eliminate up to 50% of unsecured debt and arrange a reduced repayment over a 12 to 36 month period. At the conclusion of the term, any remaining debt is written-off so you will be completely debt-free.

Better Business Bureau

Check with the Better Business Bureau (BBB) to identify the debt settlement companies with the best ratings. This is an invaluable way of identifying unethical and unscrupulous providers. Make sure that the check is performed on the company providing the debt solution and not the affiliate that refers you. This can easily be checked prior to signing-up.

Avoid Any Debt Settlement Company That Front-Loads Fees

The majority of debt settlement companies charge about 15% for their services, but it's now illegal for them to charge upfront fees. If a company attempts this tactic, you should report them to the Federal Trade Commission (FTC).

Go through an intermediary that takes their 15% from each monthly payment. Provided that the creditor is receiving payment, they're less likely to send collection agencies after you.

Timeframe of Debt Repayment

The timeframe of a debt settlement program is usually between 12 and 36 months. It's possible to extend the term, but this isn't recommended because it increases the likelihood of legal action. If you can keep the repayment term to 24 months, you have a great chance of becoming completely debt free. However, there's no point in trying to clear debt at a rate that isn't affordable to you.

Every debt settlement company is different, so it's essential that you do your research before proceeding. Avoid front-loaded plans and keep the repayment term as short as possible, but never compromise your ability to make the repayments. Remember that there are other debt solutions available to you so always seem professional advice.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 30 April 2011