The objective of unsecured debt settlement is sustainable, affordable debt repayments for the client. This is achieved by securing a debt reduction of up to 50% to the principal which makes it a lot easier to pay off all debt at an affordable rate over the next 12, 24 or 36 months. An important part of eliminating debt with this debt free solution is selecting the best debt settlement company from the outset. Whilst there are many companies that help to clear debt, some are solely interested in their commissions. Fortunately, there are ways to help determine whether a provider is credible or not.
How to Select the Best Debt Settlement Company
The Federal Trade Commission (FTC) has issued a set of guidance notes for consumers who are looking for a debt solution to pay off all debt at an accelerated rate. An unsecured debt settlement service provides a viable alternative to bankruptcy, but it isn't a legally binding agreement so doesn't offer court protection from creditors. It also isn't as strictly regulated as might be anticipated so follow the FTC guidelines when looking at various debt settlement companies.
FTC Guidelines When Selecting Debt Settlement Companies
- All policies and procedures should be clearly documented.
- Must be a Better Business Bureau (BBB) member.
- Some sort of debt settlement service certification would be appropriate.
- Be prepared to undergo regulatory assessment.
- A process should be in-place for customer complaint resolution.
- An in-house legal department with credit industry experience.
- The service should be provided from start to finish by the same company.
- An in-depth review of their program should always be provided.
- Any fees must be disclosed to the client prior to commencement.
Potential Negatives of a Debt Settlement Service
- Not legally binding. The results are not guaranteed at any stage.
- Excessive fees. Whilst clients are prepared to pay a reasonable fee to pay off all debt, any charges should be taken from monthly payments. Avoid companies who impose hefty fees or take their charges up-front.
- Creditor contact. Even after a Limited Power of Attorney (LPOA) is in-place, creditors can continue to contact the debtor for repayment.
- Settled debt is taxable. The Inland Revenue Service (IRS) treats any debt that is settled for more than $600 as a source of taxable income. This IRS refers to this as the Discharge of Indebtedness Income.
- Low credit score. Entries will show on credit reports as "settled for less than full amount". This may still be better than leaving an account in a delinquent state.
Pay Off All Debt with a Debt Settlement Program
Although there are no guarantees of a successful outcome, an alternative to bankruptcy could help to eliminate unsecured debt in less than 3 years. However, it isn't a legally binding obligation so precautionary steps need to be taken prior to signing-up to a debt free solution. Following the FTC guidelines will help to identify a quality debt settlement company. Companies should also be a member of a trade association, such as the Association of Settlement Companies (TASC), as this ensures that they adhere to specific standard.
Sources
(Oct 21, 2008). "Debt settlement industry standards fact sheet." Federal Trade Commission (FTC).
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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