Debt Settlement is one of those areas that I haven’t liked.  It usually means that the person being “helped”, is helped out of their money, their credit rating and never hear of the company again.  There are so many small debt settlement companies out there that it’s hard to find a good one that actually works, is ethical, moral and honest.  Let’s explain why…

There are several reasons that you would want to negotiate a settlement.  One is because you don’t have enough money to even pay the basics of life for food, shelter, utilities and transportation, yet alone the minimums for your debts.  You have to have the basics or you aren’t living a decent life.  Second, the debt was created by circumstances beyond your control; accident, death, business failure, national economy, etc, that would take the rest of your life and the lives of your children to pay off.  So, after careful consideration, you decide you can’t pay off the debt and can’t or won’t do a bankruptcy.

To do a debt settlement, the client discloses all their bad debt to the settlement company who says that they can negotiate a lower payment.  Well, ok… why would a creditor negotiate with anyone other than the one owing the debt?  They don’t, unless it is with someone that has some clout, like an attorney.  If they do negotiate a lower payment or lower payoff it’s as if you are doing it yourself and won’t get the deep discounts that attorneys can.  But, let’s say they get some good settlements negotiated… now what?

Now it’s time to start making payments.  There are several ways that payments are paid.  If you have money, then the first money goes to the negotiating company, then to the debt payoff itself. Otherwise you make payments on a monthly basis and the money is accumulated, (after payment to the negotiation company) and then paid off to the creditor.  The creditor will post a negative on your credit report such as a 1. charge off, 2. late payments all while it’s being paid off, 3. settled for less than owed, or 4. collection account.  All very damaging to your credit scores.  The ideal situation would be to have a service that will also negotiate a removal of all damage off your credit reports after the debt is settled and paid.  I know of only one in the United States that actually does this and they are amazing!

The payoff then could take months or even years to payoff, depending on the amount of debt paying off and your ability to pay.  The trick is to know the cost of your negotiating service before you start paying or signing a contract.  Most often, the negotiating company will scam you and get much more money than the service is worth.  Why would you pay for a negotiating service that will destroy your credit and cost you a ton of money?

So, if you get some company that says they are going to “help” you… watch out, be careful, get all the facts and put your hand over your pocketbook and your credit scores to keep them from having both stolen.

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