Questions to Ask

What fees do you charge?

Make sure to find out exactly how much you will be paying for the companies services. Many companies charge either a flat fee or a percentage of the debt they settle. With a flat fee you know going in how much money you will be paying for the service, with a percentage fee, you will not know what you are paying until the settlements start coming in. Beware of a company that asks for a big upfront payment, a third of your fee or more before they contact your creditors. It is a big red flag when a company does not do work without having the majority of their money. Many companies charge anywhere from 15 to 20% of the debt you bring into the program. There are companies that charge less. Shop around, get the best fee, you should not have to pay more than necessary for the service. Watch out for hidden fees. Make sure you know the total amount you are going to pay for the service before signing the contract.
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Who holds the money?

You should control your own money, case closed. If a company requires you to send money to them or to put it in a special bank account this is a red flag. You should be in control of your own money until it is a time to pay a settlement. Then you should take your money and pay off the settlement with the assistance of the debt settlement company. You should always be in control of your own money that will be used for settlements.
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How many years have you been in business?

There are many companies springing up in these uncertain financial times. Do you want a company that is learning with your case? Look for an established business that has been doing debt settlement for a while. You do not want to go through the nightmare of being some other debt settlement company's learning experience. A good question to ask the company is how many years, on average, do the company's negotiators have settling accounts for clients, and what is their settlement rate? After all, that is what you are paying for, and you want experienced people working on your behalf.
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What happens if you can’t settle a debt?

Make sure the company tells you up front what happens if they can’t settle a debt. You should not have to pay a settlement fee on an account if the company cannot get you a settlement offer. This should be disclosed to you when speaking with a representative from the debt settlement company, and you should also get it in writing.
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Who does the negotiation, you or another company?

There are many sales companies that just sell a debt program on behalf of another company. Do you really want to just talk to a sales team? If the company just does sales on behalf of someone else, ask about the track record of the negotiator. Ask to speak to the negotiation company so you are comfortable with them. Ask who will field complaints, the sales team or the negotiator. Ask who will ultimately be responsible for your case. If a company not only talks about the program but also has their negotiation team in house, then you know exactly who you will be working with on your case.
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How many clients do you have?

Again this goes back to how many years in business. If a company only has a few clients, can you be certain that they will be in existence in the years to come? While the biggest is not always the best, it is an indication that the company has a track record. In these times with heavy government regulation, a company that has many clients has more likely than not already passed some sort of government muster.
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How many clients did you get out of debt?

Everyone can say how great they are but the proof is really in the results. Ask how many people have gotten completely out of debt. Ask how many have settled some of their accounts. If they can’t give you an answer, red flag. If they say they are just a sales arm and someone else does the negotiation, demand to speak to the company that will be negotiating on your behalf. You want to know their results as they will be the ones representing you. You want to talk to the same company from the beginning of the program until you are out of debt. You essentially have "one nose to touch", and that is the way it will work the best for you.
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Are they a member of any Federal Organizations?

In the past it would be a good idea to look at the BBB to see if a company passes muster. Unfortunately, the BBB has unilaterally decided to revoke the membership of all debt settlement companies no matter how big, how many years in business or how many or few complaints a company generated. While this is unfortunate, you must take into account that the BBB is a private organization which is not run or controlled by the government. Look for a company with some sort of national affiliation or recognition like a Chamber of Commerce. Beware if a company says they are part of a national trade organization. Some companies will say they have this affiliation and it is not always true. Call the trade organization, find out if the company is really a member, but also ask more probing questions such as:

• Do they discipline a member who is not doing business within the established guidelines of the organization?
• Have they sanctioned or revoked memberships of any members?
• What kind of protection can they give you if you engage in any of their members' programs?
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Does the company have written policies and procedures for customer service?

This is important. You want a company that has rules with respect to how they treat you. A reputable company will have a written set of standards by which all companies will operate. You want to make sure the company makes you the first priority. Another factor to consider is if the company has in-house counsel that monitors the conduct of the company, and that takes compliance seriously. Again, you want to make sure that the company is as dedicated to getting you out of debt as you are.
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What will happen to my credit?

Your credit score is going to go down. When you stop paying your bills your credit is effected, there is no way around it. If your credit score is the most important thing to you, then pay your debts. Any type of debt reduction program will have a negative impact on your credit. Again, if someone tells you otherwise they are lying, and the motto is, if they are lying about this, they probably are lying about other things.
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Do they claim to be a law firm?

If they claim to be a law firm, make sure to get the names of the attorneys in charge and confirm they are licensed. A good place to do this is the following website: www.martindalehubble.com
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How many times have you changed your name?

A very big red flag. Not many companies will admit this on the phone, but a little research on your part will help to reveal the facts about the company in question. Do your homework! Check out the company. Go to your state's corporate registration page and see how many companies are registered to the owners or their officers. If you see a slew of companies all doing the same work, be careful. Make sure to ask while you are on the phone. A good company will not have to change its name to protect its business.
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Can I get sued?

The answer is yes. If a company tells you otherwise then they are not telling the truth. If they lie to get your business, what else are they lying about?
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Are they pushing to make a first payment?

If the company is aggressively trying to make you commit to paying them the first payment this should be a red flag to you. Many companies pay a commission and all the salesperson cares about is making sure you make the first payment to the company so they get paid. If making the first payment to the company seems like the most important thing to the salesperson, then they are not looking out for your best interest.
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Does the company disclose possible tax consequences?

The company should let you know there are possible tax consequences if you save more than $600.00 when settling a debt.
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More Information

While there are many people who want to say the entire industry is bad, like other business there are good players and bad players. Here are some positive articles about the debt settlement industry:

When debt settlement makes sense
It's not for everyone, and the industry is largely unregulated, so you'll need to exercise caution if you hire a company. Despite that, it may be worth considering.

By Liz Pulliam Weston

Computer salesman Dennis Firenze tried to build a real estate empire -- and wound up with $270,000 in credit card debt he couldn't pay.

Firenze, 51, hadn't counted on the high vacancy rate and tenant-caused damage that plagued his properties: two condos in Chicago and a 22-unit apartment complex in Phoenix. At one point, he said, he was shelling out $20,000 more a month than the properties were taking in.

The Vista, Calif., man tapped his 401(k), drained his children's college savings and used 0% credit card offers to keep the properties afloat, eventually carrying balances on 13 cards. But then he was a day late with a payment. His interest rates soared, and collectors began to call.

" They're brutal," Firenze said of the calls, which sometimes came every 15 minutes. "They were like, 'You need to give us $80,000 today.'"

Firenze attempted, and failed, to negotiate settlements with his creditors. Then he turned to Debt Settlement USA, a Scottsdale, Ariz., company that assured him it could do what he couldn't.

So far, so good, Firenze said. Within three months, the negotiator assigned to Firenze's case settled a $60,000 credit card bill for $18,000. A few months later, another $60,000 debt was settled for $20,000.

After 11 months in the program, Firenze has settled a total $221,000 of his debt for $75,000 -- and paid Debt Settlement USA a fee of nearly $38,000 for its help.

" Their fee is exorbitant," Firenze said. But the settlements were "a heck of a lot better than I could do . . . . I'm thrilled with what they've done."

Plenty of perils
Largely unregulated and filled with perils for consumers, the debt-settlement industry has nonetheless found a niche among troubled borrowers who are trying to avoid bankruptcy.

Debt settlement is sometimes confused with debt consolidation, where borrowers are offered one big loan to pay off their smaller debts, and with credit counseling, where agencies attempt to set up low-interest repayment plans so borrowers can pay off credit card debt over time.

But debt settlement is a different animal. Instead of offering a loan or repayment plan, debt settlement companies typically advise their clients to stop paying their bills and instead save up cash, which the company will then use to negotiate lump-sum settlements. The dangers are many, including:

• Fraud. Some companies offering debt settlement are fly-by-night scams, eager to take big upfront fees and then disappear. Others are too inept or inexperienced to negotiate effective deals. Either way, the result is the same: money down the drain at a time when you can ill afford the loss.
• Credit score damage. Failing to pay your bills on time will trash your credit scores. The better your scores, the greater the toll. Settling a debt for less than what you owe can do additional damage.
• Lawsuits and wage garnishment. Creditors increasingly are using debt collection law firms that are quick to file lawsuits when borrowers default, as I wrote in "Don't ignore that debt collector." A successful lawsuit can lead to wage garnishment or liens on your property. In fact, some creditors are so resistant to working with debt settlement companies that they immediately "go legal," or file a lawsuit against a debtor as soon as they are contacted by his or her debt-settlement company, said Jamie Welsh, a director with Kaulkin Ginsberg, which tracks the collections industry.
• Lack of regulation. The federal government doesn't regulate debt-settlement companies, although the Federal Trade Commission is considering imposing some rules. Few states regulate the industry, and " where those states are, the debt-settlement companies aren't," Welsh said. So -- for now at least -- it's completely "buyer beware."
• Taxes. The difference between what you owe and what you pay in a settlement typically is considered taxable income by the IRS. So if you're in the 25% federal tax bracket, you could owe $2,500 for every $10,000 in debt that's forgiven. (Firenze said he has enough capital losses from his properties to offset the additional income, but many people in similar situations would be stuck with a five-figure tax bill.)
• Cost. Debt settlement doesn't come cheap. Some companies charge 14% to 18% of the total face value of the debt you want settled, while others require a large percentage of the amount they actually settle for you. Firenze paid Debt Settlement USA 14% of the $270,000 he originally owed, a total of $37,800, in monthly payments spread out over a year.
• Time. In addition to not being cheap, debt settlement typically isn't fast. Although the bulk of Firenze's debt was settled in less than a year, the average debt settlement process takes closer to two years, said Jack Craven, president of Debt Settlement USA.

Bankruptcy is cheaper; debt settlement is faster
Contrast that with a Chapter 7 bankruptcy, which wipes out most unsecured debt and is usually over within four months. People who file such bankruptcies get a fresh start that allows them to begin rebuilding their credit immediately. They no longer owe their creditors, and the upfront cost for filing is usually around $1,200 to $1,500 -- far less than the cost of debt settlement. (See "Your 5-minute guide to bankruptcy.")

Clearly, if you can't pay your bills and you can file a Chapter 7, that's a better course than debt settlement.

But Firenze's six-figure income disqualified him from filing for a Chapter 7 bankruptcy. His only option would have been Chapter 13, which requires a five-year repayment plan.

Firenze wanted out from under his crushing debt faster than that. In fact, he's hoping to be debt-free by his wife's July birthday. The family has sold its cars and is steadily selling off unused possessions on eBay to raise more money for settlements.

" We'll own nothing, but we'll owe nothing," Firenze said. "We'll be starting over."

Where to begin
If you're contemplating debt settlement, first talk to an experienced bankruptcy attorney about your situation. If you decide to hire a debt-settlement company, be prepared to do plenty of research -- with little regulation and no guarantees, you'll want to choose carefully.

Understand The Positive Gains Of A Credit Card Debt Negotiation Program?

By Credit Watcher | October 31, 2008

Credit Card Debt Negotiation is becoming one of the most used systems for people to reach debt freedom recently, how come? One of the key reasons so many people are looking to debt settlement as a means to get out of debt is due to the hard financial state of affairs we are currently going through here in the USA. Most people need to save funds on a monthly basis and really can’t meet the expense of having such large sums of unsecured credit card debt. Being cornered in credit card debt is something that can seriously weigh down on consumers monthly finances, and debt settlement happens to be one of the most resourceful ways for people to get out of debt quickly and save money.

So what are the key advantages of a debt settlement program? They are in reality twofold, first you can save quite a extensive sum of funds on how much unsecured credit card debt you presently owe your credit card companies; subsequently you will get out of debt extremely rapidly saving yourself eons of time sprinting on the credit card debt treadmill.

The reason you keep so much money is because what you are doing with debt settlement is saving funds on the side on a monthly basis, often times in a specialized account with a debt settlement organization that the credit card companies can’t get access too. While at the same time you are no longer currently making your monthly minimum payments to the credit card companies. By not paying the credit card companies each four weeks you are putting them into a spot where they must make a settlement on the account to earn money. Then you will negotiate a one time settlement for much less than what the balance is; in turn saving a substantial sum of money on what was owed.

Now this is where the savings of time comes into play. With debt settlement it normally should take no more than two years to finish this method with every single one of your creditors. So for all intents and purposes you will be out of debt within a couple of years. Now if you were just to make the monthly minimum payment every month this avenue could end up taking you well over thirty years. So the savings of years is quite extensive.

In conclusion the last and most ignored advantage of a credit card debt settlement program is that you will be vastly lowering the amount of distress you will have. The moment you are out of debt you will see a big increase in your finances every month which lowers quite a lot of stress.