In general a debt settlement company are supposed to do the following:

- get the collections calls to stop
- negotiate on your behalf to lower interest rates
- settle the debt after you have amassed enough money to do so.

How they go about doing this differs from company to company.. and this is what you should be aware of:

THEIR FEE:

After you talk with them.. they will tell you that you can pay all your debts in about 2-3 years by paying x dollars per month.

For some companies.. the first 3-6 payments you make are ALL applied to their FEE. Which means none of that is put to work for you towards your settlements.

Other companies take a portion of each payment for their fee.. which means the longer you have the debt, the more fees you pay.

THE ESCROW:

Some companies will take the entire X amount of dollars from your bank account each month.. and hold it in escrow. Then once it is a significant amount.. they will let you know that they can settle one of your debts. You give them authorization to do it, and they do it.

Other companies expect YOU to be saving the X dollars per month, and they just suck their fee out. This means that you have to resist the temptation to spend the money you SHOULD be saving towards your debts settlement. You have to let THEM know when you THINK you have enough to settle with a creditor and then they make you do the arrangements.

THE COLLECTION CALLS:

When you are getting harassed by a creditor.. some companies will take care of this for you.. they will send the creditor a cease and desist letter and that will generally stop the phone calls.

Other companies, will tell you to look at the forms they sent you, and you have to write the cease and desist letter yourself.


THE BOTTOM LINE:

If you choose to go the debt settlement route.. choose a company that

1)Has a flat fee (i.e. the first 3 months or so.. and then nothing else) instead of one that has an ONGOING monthly fee

2)Holds your money in escrow and settles the debts for you and does ALL the paperwork.

3)Makes the phone calls and sends the cease and desist letters on your behalf rather than making you do it.


Make sure the company doesn't put all the WORK in your hands.. because if you're doing all the work.. what are you paying THEM for?


Also.. you should know that if one of your creditors decides to sue you.. they can still do that regardless of whether or not you are in a debt settlement program.

Should that happen, you would want your company on your side.. so ask them what they would do in those situations.

Hope this helps!

Thanks for your amazing explanation on credit card explanation programs. One of my friends was in need of help on credit card settlement, now this is going to help him.

It's really useful suggestion you have shared here, David! Thanks for this informative advice.

Back in 2002 I actually signed up for one called American Consumer Credit counseling. Would I do this again knowing what I know? Probably not, because I have found that you can do everything they did for me with some persistance and no fees. But I was young and inexperienced so I went for it. It was a very positive experience and they brought everything they said they would to the table. The one thing you should note is that it does put a red mark on your credit report while your in the program, so you won't be able to borrow money, which is a good thing.

What you do is to inform your credit card provider that you cannot keep on the monthly payments anymore. They should be able to give you a settlement plan.

^_^

Keep on keeping on...
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