Choosing the right Debt Relief Service: what you must know before you sign up


Triston Martin

Dec 06, 2021

If you are overwhelmed by the amount of debt you owe to creditors or would simply like some assistance in paying back loans, looking into debt relief services could be your next best bet. Accredited and top-reviewed debt relief services work in tandem with your creditor to reduce the overall amount of money you owe them; they charge you with a fraction of the reduced amount as their fee.

How do debt relief services work?

Debt settlement assists the borrower by decreasing the amount of money they owe to the creditors. Instead of returning the entire loan over a period of time, you get to pay off a portion of the total debt as one repayment. This way, the creditor benefits by getting off some of their money back in one lump sum, while the borrower enjoys a reduced debt overall.

Things to consider before you sign up for debt settlement:

Before signing up for a debt relief service, make sure to read the fine print of what these companies offer long-term, and if you are better off with declaring bankruptcy, which could prove better for you in the long-term in some cases.

First and foremost, look into the type and amount of debt the company can settle for you, and at what percentage of the amount as fees. Cross-check their claims at accreditation with the International Association of Professional Debt Arbitrator, or the American Fair Credit Council, to ensure authenticity.

Debt relief services cannot shelter you from collector calls, financial lawsuits, or a plummeting credit score. Be vigilant of what the service claims it can do for you. Read up on reviews of a debt relief service you are choosing if it sounds too good to be true.

The cost of settling debt:

Reputable debt relief services charge anywhere between 15% to 30% fee for their assistance in tackling loans. This could be a percentage of the total amount of debt or the amount which you settled to ultimately payback. Be upfront with your potential services about their fees and any other hidden charges, and if they are unclear about compensation, then it's best to look elsewhere.

The two sides of the Debt Relief coin:

On the one hand, debt settlement enables you to pay off a significantly lesser amount than you owe and avoid filing for bankruptcy. But you will also have a lower credit score, collection calls, and even potential lawsuits as you stop paying the minimum on your monthly loan payments. The low score due to debt settlement remains on your credit for seven years.

The entire debt relief process takes between two to four years, so you should be wary of the increasing interest on your loans during this time frame. Missing loan payments could also lead to penalties and late fee charges, which could ultimately cost you more than the amount you settled.

Another factor to consider when you are making a choice for a debt relief company is that you may owe taxes on the amount of debt forgiven. The IRS considers the amount forgiven as taxable, so if you reduced your total loan by $1000, you will have to pay taxes on this amount.

It is best to keep in mind that your offer for debt relief may be rejected by the creditors. You should have a counter-offer ready for such a scenario. You might end up with more debt on your hands than what you started with, since debt settlement is a long and tedious process, and a rejected proposal for debt relief may even end you at the brink of bankruptcy.

Effective Debt Management:

Reputable debt relief services also offer Debt Management Plans to help borrowers pay off certain kinds of debt most effectively, without harming their overall credit score. Credit card debt and medical bills are some of the areas where they can assist by significantly lowering interest rates and chalking out a medical loan repayment plan which doesn’t break your bank.

Exploring other options:

If the debt relief services aren’t offering what you want, then there are several alternatives to settling your loan without getting overwhelmed.

A simple yet effective way of starting to pay back your loans is getting financial counseling at a credit counseling agency which is a non-profit. The experts available there can assist you in getting back on your feet, come up with a debt repayment plan, create a viable budget for you and give you advice about closing accounts or filing for bankruptcy. They also provide moral support in difficult financial times.

Transferring balance to a new credit card that offers 0% APR for a short period of time can help you control the rising interest on your debt, and if you pay off the shifted debt within the interest-exempted time period, you can significantly lower the interest paid.

Another great alternative to debt settlement is a debt consolidation loan, which makes repayment easier by breaking them down into smaller, more manageable monthly chunks- all with a lowered interest rate.

It is best to weigh out all your options, check with a credit counselor, and explore all alternatives before you commit to a debt relief service. Take into account their terms and conditions, and get all information upfront for loan repayment, which is easier both on your pocket and your mind.


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