How to choose a debt settlement provider

This article was paid for by Freedom Debt Relief.

A debt settlement (or debt relief) company can offer strategies to help you find relief from overwhelming debt, collections and mounting fees. While most negotiate with creditors to lower their balances, some offer additional services.

Not all debt settlement companies are created equal. Here's what to look for (and what to watch out for).

Debt relief comes in various forms, and not every company offers every alternative. Before you shop for a debt settlement company, try to figure out which is would be best for your situation.

If you're not sure, don't worry: A reputable provider should offer a free consultation where you discuss your options.

• Debt validation: A creditor can't collect a debt it can't validate. A debt settlement company may be able to reach out to request proof from the creditor or debt collector that the debt is current.
• Debt consolidation: A debt consolidation loan rolls multiple bills into a single monthly payment, ideally with lower interest, smaller monthly payments or both. Some lenders will even distribute the funds directly to your creditors. You may need to meet certain credit requirements to qualify.
• Payment plan: The company can work with your lender or debt collector to spread out your payments in smaller increments, based on what you can afford to pay each month.
• Debt settlement: Debt settlement companies are best known for negotiating with creditors to settle your debt for a reduced amount. The remainder is forgiven.
• Bankruptcy: If your debt has caused severe financial hardship, you may be able to file for bankruptcy to discharge your eligible debts. The process can be complicated, so working with a bankruptcy attorney is advised.

Do your research before committing to any strategy or signing up with any provider. Don't let yourself get rushed into any plan, especially ones that may impact your credit score or financial future.

If you decide a debt settlement plan is the right solution and you begin researching companies, look for these green flags.

Accreditation

Look for a company that is accredited by the nonprofit International Association of Professional Debt Arbitrators (IAPDA) and/or the industry group American Association for Debt Resolution (AADR). This shows it's maintaining accountability standards in the debt relief industry.

Reputation and longevity

Review a debt settlement company's review on independent review sites and the grade given by the Better Business Bureau. While it's not a guarantee, the longer a settlement company has been in business, the more likely it is to be legitimate. You may also want to consider how many consumers it's helped, the average settlement it's garnered for its clients and other information.

Availability

The company needs to operate in your state and accept clients with the amount of debt you're carrying. Company representatives should also be honest about what they can and can't do for you and discuss all your options — including those the company doesn't offer.

Transparency

You should receive regular updates on the settlements the company has successfully negotiated and have access to a dashboard showing how much you've saved toward your goal.

Fair fee structure

Debt settlement typically costs between 15% and 25% of the enrolled debt, though there may be additional fees for opening and maintaining a special account to pay your creditors from. Make sure the company's fee structure is clearly stated and that clients are only charged a settlement fee after the company negotiates an agreement, not up front.

There are many legitimate and reliable debt settlement companies, but the desperation of many consumers has allowed scammers to proliferate. Be on the lookout for these signs that a company isn't legitimate.

Ask for money up front. A debt-relief company shouldn't charge you anything before it provides a service. Fees come as a percentage of settled debts and should be charged only after you've received a settlement.

Unrealistic promises. Disreputable companies may try to hook you by promising success or that it will to save you a specific percentage or amount of money. Without talking to your creditors, there's no way it can make this guarantee. It also can't guarantee it will eliminate your debts, stop debt collection calls or end lawsuits.

Speedy results. It usually takes between 24 to 48 months to negotiate and complete a debt settlement plan. Beware of companies that promise relief in just a few weeks or months.

Say they can "fix" your credit. You can't get rid of accurate negative marks on your credit report. Debt settlement companies can request that a creditor validate a charge and work to have errors removed from your report. But if the item is accurate, it will remain on your credit report, typically for at least seven years.

Claims to be part of a government program. There are no government programs that help with consumer debt, so don't believe a company that says it's working with one (even if it claims it's "new"). There are options for government-backed loans, like FHA mortgages and student loans, but you should work directly with your loan servicer, not a third party.

The debt settlement process can be lengthy and confusing and it requires patience and dedication. But finding the right company and successfully completing a debt relief plan is a game-changer.

Not sure where to start? Freedom Debt Relief is a highly rated credit card debt relief company with accreditations from both IAPDA and AADR. Schedule a free consultation to see if its plans are right for you.

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