You've seen the ads. companies that swear they can clean up your credit problems, settle your debts for pennies on the dollar, as well as keeping you out of bankruptucy.
There are 600 to 800 such companies nationwide. Here are five things to know before hiring a debt settlement company.
First. You'll pay a hefty price.
Some companies charge 13% to 20% of the consumer's total debt which is paid over the first 12 to 15 months. Others charge up to 35% of the settlement amount.
Second. Expect the process to be contentious.
Most banks strongly oppose working with debt settlement companies. That's because the companies instruct their clients to stop paying their bills in order to save for a future settlement.
Third. Attrition rates are very high.
Records from one company shut down by the f-t-c show only 638 of it's 44,800 clients or just 1.4% completed the debt settlement program. 43% cancelled after paying an average $1,780 dollars in fees.
Fourth. Debt settelment may not be right for you.
If you have too much debt you my be better off filing for bankruptcy. Or you may have too little debt to justify a settlement. You can set up a payment plan yourself with each creditor.
Fifth. You could get sued.
If you don't have bankruptcy protection companies may sue you if you go months without paying your bills.
So think about this carefully. You could also get advice from a non profit debt counselor or attorney.