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3 Things You Need to Know Before Choosing a Debt Relief Company

There are a variety of debt relief options, including debt consolidation, settlement, management plans, credit counseling, bankruptcy, and many do-it-yourself programs. When choosing a program, consumers should consider their amount and type of debt, credit score, and ability to make monthly payments. Most debt relief companies offer free consultations. These provide an opportunity for interested consumers to find out about fees, tax consequences, and program lengths. It is important to research a variety of companies. Reputable companies are often accredited by third-party organizations, are upfront about fees, and only promise realistic results.

Debt Consolidation Process: When customers work with a debt consolidation company the process typically begins with a free consultation. The company performs a credit counseling session to evaluate debt, credit, and available income. Once a thorough investigation has been performed, eligible applicants will be enrolled in a debt management program. These companies often negotiate lower interest rates with creditors. Customers will then pay one, streamlined monthly payment. They often pay the agency and the agency pays the creditors. However, some companies offer loans rather than debt management plans. With these loans, all creditors are paid and the customer then pays off the new loan at a fixed, lower interest rate.

Debt Settlement Process: Debt settlement is the process of negotiating with creditors for a lower overall debt amount. It is recommended for individuals with high, unmanageable debt. Typically, debt settlement companies first evaluate the needs of potential customers and then create a customized plan. This plan often involves customers allocating a portion of their paycheck to a specific FDIC insured savings account. The company will use this saving account to negotiate a lump sum payment to settle a debt. The best debt settlement companies comply with federal guidelines and are upfront about prices and results.

Pricing and Fees: Debt consolidation and settlement use different pricing models. Many consolidation companies are non-profit organizations, so they only charge administrative fees, often a set monthly fee. However, some companies also charge set up and cancellation fees. Companies that offer loans, rather than debt management plans, have a set interest rate. On the other hand, most debt settlement companies charge a percentage, either of the debt enrolled or debt saved. Due to Federal Trade Commission regulations, settlement companies should not charge any fees before a debt settlement agreement is formed.