Tips for Choosing a Debt Relief Company

You have a lot of options when it comes to debt relief, from the method you use to the debt relief company you choose. Having all those choices is great—except when you're not sure how to pick the right one.

The key to making the right choice is to know exactly what you want out of your debt relief company. Read on to learn about your debt relief options, as well as how to find the best debt relief company to make it happen.

Choosing the Right Debt Relief Option

The first thing to do is figure out what type of debt relief help you need, which means choosing your debt relief method. Here's a quick look at your basic debt relief options.

Debt consolidation/refinancing

Refinancing and consolidating your credit card debt under a new loan with a lower interest rate could lower your monthly payment and simplify the repayment process. 

Most people use a personal loan or a home equity loan for debt consolidation. The repayment term on a personal loan is typically two to 10 years. For a home equity loan, you might have 10 to 30 years to repay the loan.

Credit counseling

Credit counseling agencies are nonprofits that help you with financial education, budgeting, and organizing your debt. If you qualify, your credit counselor may also help you set up a debt management plan (DMP).

A DMP involves consolidating your unsecured debt (mainly credit cards) and negotiating with your creditors to reduce your interest rates and fees. Once the debt management plan is set up, you'll make one monthly payment to the counseling agency, which will then pay your creditors.

A DMP is designed to fully repay all of your unsecured debts within three to five years, so the payment could be high.

Creditor hardship programs

Many creditors offer hardship programs that can help you deal with debt if you’re experiencing a financial hardship that makes it difficult to pay. Common types of financial hardship include job loss, divorce, the death of a loved one, or severe illness or injury.

A creditor hardship program may include:

• Reduced interest rates

• Loan extensions

• Payment forbearance

• Fee waivers

For best results, contact your creditor as soon as you realize you may have trouble making your payments.

Ask whether interest will continue to accrue even if you’re allowed to skip payments (it probably will). Also find out if you'll need to get caught up on all missed payments. This could be a hardship. For example, if you are given a three month payment break and in month four you’re expected to make a giant four-month payment, it’s good to know that ahead of time.

Debt settlement

Debt settlement means negotiating with your creditors to accept less than you owe to get rid of your debts.

You can choose to negotiate with your creditors for debt settlement on your own. Make sure to research the process well. It can be tough to convince creditors to take less money than they're owed. 

Alternatively, you can hire a professional debt settlement company to work on your behalf. An experienced debt settlement company may be able to settle your debt faster and for less than you could do on your own.

Bankruptcy

Filing for bankruptcy can be an effective debt relief option if you need legal protection from your creditors. All kinds of bankruptcy put an immediate (but temporary) stop to collections efforts, including mortgage foreclosure.

If you qualify for Chapter 7 bankruptcy and have a lot of unsecured debt, like credit card debt, bankruptcy could get rid of your debt faster and for less money than other strategies.

Chapter 7 bankruptcy is known as liquidation bankruptcy. A successful Chapter 7 bankruptcy can eliminate most or all of your unsecured debt. The catch is that you might be forced to give up some of the things you own. For example, you generally wouldn’t be allowed to own multiple cars. You can keep a modest vehicle, but the others would be sold and the money given to your creditors. To qualify for Chapter 7, your income must be low enough that you can’t afford a payment.

If your income is higher, you could choose Chapter 13 bankruptcy. This is the reorganization bankruptcy. It’s a structured repayment plan. 

It’s a good idea to hire a bankruptcy attorney to help you with the process. People who self-represent have a lower success rate.

You May Like These

Debt and Divorce: From Division to Debt Relief

How Long Does Debt Relief Take?

How to Find Debt Relief for Seniors

Factors to Consider When Choosing a Debt Relief Company

Sorting the good debt repair companies from the bad takes a bit of research. Here's what you should consider when comparing your options for debt relief companies.

Services

First thing, make sure the debt relief company you choose actually offers the services you need. Not all debt relief companies will offer the same services, so check out websites or set up consultations to find out what each company has to offer.

Fees and costs

Any debt relief company worth your time will be transparent about its fees and payment structure. Make sure the costs are in line with your budget and won't add to your overall debt load. 

Compare fees from at least a few companies to get an idea of the average cost for services. This will give you a sense of which companies are being fair—and which ones to steer clear of.

Experience and reputation

You want a debt relief company that knows what it's doing and has a strong reputation for doing it well. Look into the company's history to see how much experience it actually has dealing with your situation.

You can check with business organizations, like the Better Business Bureau (BBB), to see the company's ranking and history of complaints. Checking a company's status with applicable certification and accreditation boards, as well as its membership in respected industry organizations, can also give you an idea of the company's reputation. 

Customer service and communication

What good is a debt relief company if you can't get in touch with them? Choose a responsive company that answers your questions in a friendly, helpful way—and within a reasonable amount of time.

Check out the company's contact page, FAQs, and other resources to make sure you'll be able to get answers when you need them.

Success rates and reviews

Who knows a company better than the customers who have used it before? Check out online reviews, on TrustPilot or other sites, and ask friends or family for their experiences with debt relief companies when choosing your own. Look for a company with a long history of successfully helping people manage their debt.

Red Flags to Watch Out for When Choosing a Debt Relief Company

If a debt relief company waves red flags, it's time to look elsewhere. Here are some signs a debt relief company is predatory or running a scam.

Pushy or aggressive sales tactics

A good debt relief company wants to help you, not grift you. It’s an immediate red flag if you feel bullied into agreeing to something you're uncomfortable with or you’re being asked to pay money for services you don't want.

Upfront or excessive fees

Debt relief services aren’t free, but they shouldn't be so expensive that they make your debt problem worse. The first consultation should be free. 

If you're looking specifically at debt settlement, remember that debt settlement companies aren't allowed to charge any up-front fees to settle your debt. At Freedom Debt Relief, first our expert negotiators work out an agreement with your creditor. Then we present the details to you for your review and approval. After you approve, we make the first payment (sometimes the only payment) to your creditor from your dedicated account (previously set up). Only after all of these things happen do we charge our fee.

Promises or guarantees of success

No debt settlement company is allowed to make promises or guarantees about:

• Being successful. There are few certainties in finance, and no debt relief company can promise results. Any company that swears it'll disappear your debt is more likely to disappear your money.

• Settling your debt overnight. Any kind of debt relief, including debt settlement, takes time. Be wary of too-fast-to-be-true promises.

• Getting rid of your debt for pennies. Avoid companies that promise to save you a certain amount of money or claims that you'll pay pennies on the dollar for your debt.

• Stop collection calls and lawsuits. Debt repair companies can't stop or prevent lawsuits or stop collection agencies from calling you about debts you owe.

If something sounds hinky, it probably is. Trust your instincts.

Lack of transparency

You don't want a company that isn't honest and upfront with you about services, fees, and potential results. A debt relief company that keeps you in the dark probably isn't looking out for your best interests.

Poor customer reviews

A few bad reviews are part of doing business, but if the majority of the customer feedback online is complaints, that's a sign that you probably won't get the results you're after.

Steps to Take Before Choosing a Debt Relief Company

Choosing the right debt relief company is a big decision, so take your time deciding. Here are some steps to take before picking a company:

• Research multiple companies. There are a lot of debt relief companies out there, so you can compare options to find the best fit for you.

• Schedule consultations. Most debt relief companies should offer a free consultation to discuss your options.

• Ask questions about the process. Make sure you're entirely comfortable with how everything will work before you agree to anything.

• Review contracts carefully. Read through all of the fine print, even if it's boring. If you don't understand something, ask for clarification.

Everything about the process should be at your pace. Don't let anyone bully you into making a decision before you're ready.