Choosing a debt settlement company is difficult unless the debtor has criteria he can use to discriminate between different companies. Debt settlement is a process by which the debtor settles for less than the full amount of debt that he owes. Obviously, his creditors do not like this very much, which is why debt settlement comes at a high price: damage to his credit rating. While this is unfortunate, debt settlement can have a positive impact, and the debtor can always take steps to rebuild his credit. Debt settlement companies can help the debtor negotiate with his creditors. Here is debt advice about what to look for in such a company.
Honesty About Downsides
The sizable downside to debt settlement is a trashed credit rating. Using this as a yardstick, it is possible to measure debt settlement companies according to how honest they are about this aspect. Legal consequences are also a possibility along with taxation. Any debt settlement company that is not completely upfront about this must be avoided. Reputable companies will disclose these details to potential customers as soon as they enter the negotiation process for potentially becoming a client. Companies that care more about making a sale will not make a point of informing their possible clients about them.
Recent Account Activity
A debt settlement company must investigate the debtor’s accounts thoroughly in order to do a proper job. Creditors may refuse to negotiate over an account and initiate legal action to recover the full balance. Creditors do not like suspicious actions prior to entering debt settlement. In an all-too-common example, the debtor transfers the balance through a large purchase, a loan or a cash advance and then enters debt settlement. The creditor rightly smells a rat and refuses to negotiate. A good company will investigate whether this has occurred beforehand and advise the debtor what to do.
The only way to avoid legal action and bankruptcy with debt settlement is to settle the accounts before creditors get impatient. Debtors must avoid debt settlement companies that put them in a program lasting longer than 36 months (three years). Debtors in shorter programs have a higher probability of success than debtors who are in longer programs. Creditors may decide to forego negotiation and pursue legal action anyway. This possibility may be avoided with a reasonably short program, and the creditor will be satisfied with the result.
- 4 Steps to Setting Your Own Debt Ceiling (2011tax.org)
- What Is An Advance Cash Settlement And When Is It Used (2010taxes.org)