How Do Debt Relief Companies Work?

Hang on, there’s a life raft available in the form of debt relief. But how do debt relief companies work? Let's find out in this article.

How Do Debt Relief Companies Work?

You lost the handle on your debt and now you’re deep in turbulent waters that want to wipe you out, financially speaking. But hang on, there’s a life raft available in the form of debt relief. 

But how do debt relief companies work? 

What is Debt Relief?

Let’s start there. Debt relief is a financial strategy that involves hiring a professional, reputable firm to negotiate with each of your creditors to see whether they’d accept a one-time payment in full that’s less than what you owe to satisfy your debts. While the creditors aren’t obligated to work with you, they usually do because they know that if you file bankruptcy – your likely Plan B – they might find themselves in a situation in which they don’t get a dime.

What’s the Process Like?

Rather than paying your creditors – usually credit card issuers – directly, you’ll deposit funds monthly into a kind of savings account that you control. Each time you approve a creditor agreement, payment funds will be withdrawn from the account.

Won’t Debt Relief Affect My Credit?

Yes, but ultimately in a positive way. While the process of debt relief, also called debt settlement, will cause your credit scores to tumble, your scores have seen better days anyway. Once you’re back on track, debt free and your spending is under control, your scores will rebound.

Debt Relief Risks

You need to be sure you’ll stick with the relief program long enough to save sufficient funds for use as settlement leverage. So, before signing onto a program, be certain you will be able to set aside the necessary monthly amounts for the program’s duration, which could be three years or more.

That’s fine, you say. Now, how does a debt relief company work? Not so fast. You first want to make sure you pick a legit, credible debt settlement company. Why? Because the field is rife with unscrupulous agencies that are more concerned about getting your money than your financial well-being.  Some companies will over-promise or “guarantee” to settle all your debts for pennies on the dollar. Some will even attempt to apprise you of a “new government program” that doesn’t exist. Other firms will request pay up front – before any debts are settled. This is illegal. 

Having said all that, if you choose a company of long-standing renown such as Freedom Debt Relief, you’ll be just fine. If you have any doubts, run the name of the company you’re considering by your state’s attorney general and your local consumer protection agency to see whether there have been complaints logged against them.

How Much Does Debt Relief Cost?

A debt settlement company can charge you only a portion of its total fee for each debt it settles. For instance, let’s say you owe six creditors. The firm successfully reaches a settlement with one of your creditors. Well, the company can’t bill you for the full fee because it still must get settlements from five more creditors.

If the company bases its fees on a percentage of the amount settlement saves you, it must disclose both the percentage it charges and the estimated figure it represents. So, before you sign on with a service, the company must explain its fees and any conditions related to its services.

How do debt relief companies work? Now you know. What you need to do is act. You’ll be so glad you finally did. 

Get going today on your new debt-free life.

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