If you credit card debt has overwhelmed you, it’s time to face it: you can’t get out of your woes by yourself. You need a way out – and fast. Debt relief likely suits your case, but to know when to seek debt relief, you need to know more about the financial strategy. Here’s that and more.
What is Debt Relief?
Also known as debt settlement, debt relief is when you get a company like Freedom Debt Relief to approach your creditors to see if they’d be willing to accept a portion of what you owe in a one-time payment in full to have your debt marked as “settled” on your credit reports. Creditors typically agree because they know that your other option is bankruptcy, which would likely net them zilch.
What’s the Process?
Well, after you speak with a debt relief rep about your situation, and a payment plan is established, you’ll then start making monthly deposits into an escrow-like account that you manage. Once you’ve saved enough – that will depend on your debt load and income – your negotiators will use that account as leverage to get your obligations settled. After each settlement, which must be approved by you, payment will come from your account.
Won’t Debt Relief Hurt My Credit?
The process of debt relief will pull your scores down – temporarily. Once all your debts are settled and you begin to rebuild your portfolio, you will bounce all the way back. Plus, your scores aren’t that great these days anyway, right?
Also note that bankruptcy, your option of last resort, would hang out on your credit reports for up to decade.
How Long Does Debt Relief Take?
Most debt relief companies can settle your debts between 24 and 48 months – way less than it would take you to clear your debts via minimum payments. That literally could take decades. Also, remember that you didn’t get into this situation overnight.
Aren’t There Debt Relief Scams?
Anytime you have people desperate to get rid of money problems, there will be scams and cons that will attempt to appeal to that urgency and vulnerability. Fortunately, there are red flags to keep you from choosing anything less than a reputable, credible, established debt relief company.
- The company seeks payment upfront before they’ve lifted a finger to help you, or even before they’ve assessed your circumstances. That’s against federal law, by the way. You also want a transparent pay structure.
- The company isn’t accredited. The agency you choose should be a member of the American Fair Credit Council as well as the International Association of Professional Debt Arbitrators. This will help you weed out the bad actors.
- The company exaggerates potential results or makes “guarantees” about the amount you can save and by when. While a legit company can give you a good idea, it cannot promise an exact outcome.
- The company gets to you first with a robocall. Avoid these agencies. They’re likely preying upon you and if you engage them, they’ll probably have you in even worse condition.
When Should I Seek Debt Relief?
Debt settlement is a viable option if you have several late or missed payments, and possibly collections accounts. If your creditors believe that you could ultimately fork over the full amount owed, they likely won’t work with you.
Don’t you now feel empowered to know what debt relief is and when to pursue it? If you take advantage of this newfound knowledge, you can use it to get yourself back on solid financial ground. Just be sure you’re committed to repaying your debts over the long haul, that you have your spending under control, and that you pick a good company.