Looking for a way to deal with your overwhelming debt? The first step is recognizing the issue and making a commitment to resolve it. However, when it comes to massive debt, this is just the beginning.
If you’re eager to break free from your financial stress and avoid harassment from creditors, it’s crucial to understand a few things about debt settlement plans. Here are some simplified answers to common questions:
Can debt settlement erase all my debt?
No, not exactly. If you’re aiming for a completely clean slate, you’d need to file for Chapter 7 bankruptcy. This method can eliminate your debt but comes with downsides like losing your assets and a major blow to your credit score. Debt settlement is a softer approach, where a company negotiates with your creditors to lower your debt. It’s unlikely, though, that a debt settlement plan will completely clear all your debt.
Will my credit score be affected by debt settlement?
Yes, it can hurt your credit score. Many people see it as a last option because of this reason. As the company negotiates for a lower lump-sum payment, you might not be paying the full amount of your debts. This can negatively impact your credit score. Yet, many who opt for debt settlement have already missed payments and damaged their credit.
How much does debt settlement cost?
The cost depends on your total debt and the success of the company in reducing it. Fees usually range from 20-25% of your reduced debt. If your debt is reduced to $10,000 from $20,000 and the company charges a 20% fee, you’d be paying your creditor $10,000 and $4,000 to the company.
How long does a debt settlement process take?
It won’t be quick. Most companies will tell you it takes between two to four years. To compare, a Chapter 13 bankruptcy could require three to five years of court-ordered repayments, and Chapter 7 can be resolved in three to six months albeit with significant downsides.
What are my chances of being scammed?
Well, it’s hard to say exactly, but being well-informed can help protect you. Always look out for red flags like upfront fees, promises to settle all debts for the same reduction, or instructions to stop communicating with your creditors. Real deal debt relief providers often make efforts to distinguish themselves from scammers and help educate consumers. For instance, Freedom Debt Relief has a webpage dedicated to warning signs of a scam, even though there are thousands of positive reviews about their work online.
The bottom line is, ensure you’re checking customer service, fee rates, and company records when considering a debt settlement plan. It’s a big decision, so do your research and stay informed!