What is debt settlement? Check out its working process and the risk involved
People under a particular debt from a credit card or a loan take help from a company. These companies are known as debt settlement companies, which help in settling the debt. They usually help in reducing the amount of their debt and sometimes provide a loan. Unfortunately, many fraud companies are going under the name of debt Settlement Companies. It is the responsibility of the person in debt to make a complete research on the companies.
When a creditor agrees to settle in a smaller amount than a whole amount, it is known as debt settlement. debt relief services involve some of the risks that you should know while choosing the companies. First, there is a risk of your credit getting destroyed if you take help from debt settlement companies. Second, reaching the final settlement takes a long period, and it can even last for 3 to 4 years. Third, if the debt settlement company asks for charges, it can be costly for you.
Working of debt settlement companies-
The first thing which you should know is that debt settlement is only for credit card payments. If you are thinking of making a settlement for your house or car loan, it is not possible. Your credit score will get degraded after you make a debt settlement for the credit card loan. The debt settlement is only accepted when the company notices that you are not paying at all.
For making a debt settlement, you have to open a savings account and collect money in it. If the settlement company finds enough savings to pay the debt, they ask for a settlement. Of course, any reliable settlement company does not make promises of settling your debt. But they try their best and help to negotiate your debt value by talking to the company.
Risks involved with debt settlement-
If you are taking help from a debt settlement company, then several risks may come your way. Most of the settlement company is promised to negotiate your debt up to 50%. Apart from this, they also promised to finish your debt in only 36 months. But the risk involved with it is as follow-
- Your credit will face a negative image
If you are making a balanced settlement, then it could hit your credit record. Your credit record can stay negative for huge seven years. In these seven years, you cannot take any loan through your credit card or bank account. Apart from this, if you wish to open a new account, the record will also go with that one.
- Continued penalties and interest
All the penalties for missing the installments will continue to appear even after settlement. These penalties and interests grow huge with time and become a burden on balance. A person again comes into a debt condition after few years if they ignore these penalties and interest. These penalties and interest will be added to your balance that makes a huge amount.
- No guaranteed success
People who think that they will get succeed in the debt settlement process; are completely wrong. There is no guaranteed success provided or claimed by the company. Any company that claims guaranteed success is surely a fraud company. The company only tries their best to negotiate your balance but don’t make fake claims.
- Fees asked after debt settlement
If your debt is settled successfully, then you have to pay fees to the company. Some companies ask only for minimal charges, but some companies have high-end charges. Almost the complete discount which you have got on your balance cuts with the fees of Settlement Company. An individual needs to ask about the charges before they continue to work with them.
- Maintenance fees
Apart from the final settlement fees, you also have to pay maintenance fees with some companies. These are the charges that are asked monthly or after every six months for maintaining the account. The amount of these charges could be different for different companies. Therefore, the person needs to ask for complete charges and the tax before choosing any company.
What are the things to check before choosing a settlement company?
- If you have decided to take help from a debt Settlement Company, it is important to check a few aspects.
- Check the review of the company with the better business bureau and also check their historical records.
- Do not choose the company that asks for very high upfront fees and guarantees to settle your debt.
- Compare the charges of Settlement Company with the discount they are providing you in debt. This would help you in checking out the overall profit which you are getting.
These are some of the important aspects that you should take care of while choosing any settlement company for your debt to settlement. Taking care of these aspects would help you in choosing a reliable company and benefit you.