It’s a little-known fact that when you fall further and further behind on your debt payments, creditors would much rather agree to settle your debts than have you file bankruptcy and not get paid at all, says debt expert Gerri Detweiler, author of “The Ultimate Credit Handbook.”
In exchange for an agreed-upon one-time payment — typically, between 20% and 75% of what you owe — the creditor forgives the rest of your debt and starts reporting it to the credit bureaus as settled. Meanwhile, you’ll need to put money aside toward the settlement and stop making payments to your creditors. On your credit reports, the balances of settled debts will show $0. However, any previous history of delinquent payments or charge-offs will remain on your report.
Not surprisingly, creditors don’t like to advertise debt settlement. They also make it an extremely difficult solution to pursue. As a rule, creditors won’t negotiate with consumers who are current on their bills, often refusing to discuss settlements unless you’re at least three to six months behind, explains Detweiler. That means dodging collections calls while trying to save up the cash for a settlement. If you’re working with several creditors — you’d typically tackle the debts one at a time as you collect the money to pay them off — it’s hard, if not impossible to know which creditor might agree to settle earlier than others. “There’s an art to it,” Detweiler notes.
With that in mind, it would be great to have an experienced, knowledgeable debt-settlement company hold your hand through the process, right? Not really. Once you sign up with a company, chances are you’ll pay dearly for those services, some consumer law attorneys warn.
Just how much will you pay? Good luck finding that out. The industry’s fees and fee structures are all over the place, and it’s hard to get a straight answer from a company. Some companies charge a percentage of the total debt — typically 15% or 18% — that’s paid before you start accumulating savings. Others charge a percentage of the debt savings — usually 25% — once you settle, plus an initial sign-up fee and monthly service charges. Then there are those that charge a flat monthly fee throughout the length of the program.
Worse than confusing, debt-settlement services can be prohibitively expensive. It’s not unheard of to find service fees equal to 15% of the debt that take a couple years to pay off before the client can tackle the debt. A bankruptcy attorney can help you with your debt problems for much less than that.
[Source: SmartMoney.com]
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