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10 Very Important Things To Know Before Considering Debt Settlement Services
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Debt settlement companies are on the rise, advertising everywhere to settle your debt for pennies on the dollar with your creditors, stop collection calls and finally get you out of debt. The truth? These debt settlement services come with serious consequences, including damage to your credit and possible lawsuits from your creditors. The industry is also plagued by scams, and there are many debt settlement companies out there that won't actually settle your debt but continue to bleed you dry financially for years.
Before you turn to debt settlement, here are 10 things you absolutely need to know first.
1. No Advance Fees are Allowed
In 2010, the Federal Trade Commission (FTC) passed a law amending the Telesales Rule that bans advance fees. Debt settlement companies are not allowed to charge you in advance for settling a debt until they have successfully settled at least one account. Unfortunately, you'll discover that many companies still do not comply with this law.
2. Your Creditors May Sue You
When you sign up for debt reduction services, you will be instructed to stop paying your bills to give you leverage and build up a lump sum of money to offer creditors to settle. This means your creditors will have the right to sue you in civil court for defaulting on your loan. If you hire a non-attorney company to help you, they will not be able to represent you in court and they will most likely drop you as a client if this happens.
3. Your Debt May Already Be Past the Statute of Limitations
Before ever settling a debt, make sure it's not already past the statute of limitations in your state. In most states, laws state that creditors must collect the debt within a certain amount of time or lose the right to do so.
4. You May Be Better Off with a Debt Settlement Attorney
A debt settlement attorney will have better leverage in dealing with your creditors, many of whom are known to step up their collections process or file a lawsuit when they learn you are dealing with a debt settlement company. Attorneys can give you legal advice and represent you in court if you are sued.
5. Aggressive Collection Tactics
Once you stop paying your accounts, your creditors will hire aggressive collectors whose only job is making you believe that working with a debt negotiation company will lead to a lawsuit. While this may be the case, they will try to get you to make partial payments or get yourself into an unaffordable payment plan. Debt settlement companies cannot stop these calls.
6. Understand the FDCPA
The Fair Debt Collection Practices Act is designed to protect you and affords you rights that your creditors and their collectors may ignore. Become familiar with these protections as you go through this process.
7. Ask for Copies of Recent Settlements
Many companies will claim their debt reduction services have excellent results, but make them prove it. Before enrolling in their program, ask for copies of recent settlements they have obtained for clients. They can do this with the client's personal information blacked out for their protection.
8. Credit Card Issuers Sell Their Delinquent Accounts
Most delinquent credit card accounts are sold to banks after about six months of unsuccessful collection attempts. These new owners purchase the debt for pennies on the dollar, so they can reach a fairly affordable settlement with you with more favorable terms.
9. Bankruptcy May Be a Better Option
Depending on how much you owe and the types of debts you're dealing with, bankruptcy may be a better option for you. This is something you should talk about with a debt settlement attorney, as some individuals have such a high amount of debt that not even a settlement will solve the problem.
10. Your Monthly Payment Won't Pay the Debt
When you enroll in debt reduction services, that new monthly payment you're making won't go toward paying any of your debt. Instead, it's simply set aside in an account to be used later to negotiate a settlement to pay off one of your accounts.
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