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7 Questions About Debt Relief You Were Afraid to Ask

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Last Updated: Oct 8, 2018

If you’re reading this, you’re probably looking for a way to stabilize your financial situation. This is a worthy goal. The good news is you do have options and choices—even if it feels like the opposite is true.

You’re probably also venturing into new territory here, and with that unfamiliarity can come concerns. To help you through that uncertainty, here are some answers to seven questions about debt relief you may have been afraid to ask.

1. What Exactly Is Debt Relief?

Said simply, you’ll work with a company to negotiate your debt down to make it easier to pay off. In a lot of cases, debt settlement firms can get fees and interest waived, which goes a long way toward reducing the amount you owe.

It’s important to note debt relief works primarily for unsecured debt like credit cards, revolving charge accounts, medical bills and the like. Secured debt, like mortgages and car loans can’t be settled this way. The lender will simply repossess the house or the car.

2. How Does It Work?

After a consultation during which you’ll lay out your situation to a counselor, a determination will be made whether debt relief is a good strategy for you. The best companies will apprise you of all of your options—not just the ones they offer.

If you decide to go with settlement, you’ll deposit funds into a third party held FDIC-insured escrow account over which you have complete control. As the fund accrues, the settlement company begins negotiating with your creditors. When the fund has enough money in it to, disbursements are made to pay the creditor according to the terms of the negotiated settlement.

While some creditors are paid the full amount at the time the settlement is negotiated, other creditors prefer to be paid over a period of months or years. The point is to establish a structured agreement at the time of negotiation.

3. How Long Does It Take?

The exact amount of time varies according to a number of factors. These include the amount of debt you have, how rapidly you can build up your payment fund and how long it takes to reach settlement agreements. The duration is 24 to 48 months in most cases.

4. Will My Credit Be Affected?

The honest truth here is your credit score will be lower. Anyone who tells you differently is not being honest with you. However, if you’re in a situation in which you need debt relief, your credit score has probably already been affected. Either way, once you’ve completed the process, you can start rebuilding your credit rating.

5. What Will the Service Cost Me?

Law forbids debt settlement firms to charge upfront fees. No reputable company will ask you to pay until a settlement is negotiated and the client agrees to the negotiated amount. Further, they can’t force you to accept any deal they negotiate. You have full approval over the disposition of every settlement offer.

6. How Can I Tell if I’m Dealing With a Legit Company?

Fast talkers, who promise the moon, should be viewed with suspicion. There can be no guarantees in debt settlement because every situation is negotiated, so agreements can vary from case to case. Therefore anyone offering you a guarantee is not on the up and up.

What’s more, anyone who tells you they can make all of your debt go away for pennies on the dollar is not to be trusted. Certain types of obligations cannot be resolved through debt relief. Additionally, any organization that tries to sign you up before conducting a thorough review of your circumstances should be regarded with wariness.

The best debt relief companies will show you a track record of 10 years or more, as well as accreditation by organizations such as the Better Business Bureau and the American Fair Credit Council.

7. Can Debt Relief Be Trusted?

It’s important to note this is an industry around which there have been some misunderstandings—like those surrounding the Freedom Debt Relief lawsuit. Legitimate and reputable companies can sometimes experience bad press. However, the answers to these questions about debt relief you were afraid to ask will help you choose an organization capable of helping you get your finances back on track.

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