Debt settlement is a way to eliminate your debt by paying it off for less than what you owe. The service is typically offered by debt relief companies that negotiate settlements with creditors for a fee.
Like any financial service, the debt settlement experience can vary in quality and satisfaction depending on the company you choose. It’s important to find a company that follows best practices, so your experience is positive and professional. Check out our list of 6 best practices you should look for in a debt settlement company.
Learn more about debt settlement.
Debt Settlement Done Right: 6 Best Practices
- Transparent Terms
- Evidence-based Claims
- Strong Relationships With Creditors
- Responsive and Knowledgeable Customer Service
- Positive Reviews and Ratings
Debt relief companies should be accredited by a major trade group organization such as the American Fair Credit Council (AFCC.) Most companies will advertise this credential on their website. For example, you can verify their status by searching the AFCC directory of members.
The AFCC was founded in April 2011 by a group of industry leaders. They wanted to protect their reputations by ensuring that their industry members are held to a high standard. That standard includes protecting consumer rights by being in full compliance with the Federal Trade Commission’s regulatory initiatives.
AFCC members are required to meet specific standards and are evaluated for compliance regularly. There are multiple tiers for AFCC members, with the highest being “Accredited Member.”
Accredited Members undergo a separate and independent audit of their operational practices and must demonstrate strict adherence to the AFCC Code of Conduct.
2. Transparent Terms
Debt relief companies should be upfront and transparent about all enrollment terms, including:
- Debt Requirement (Type and Amount)
- Fee Structure
- Program Length
Look for a company that charges the lowest fee percentage and doesn’t require upfront set-up fees or costly and extra administrative charges. Some companies charge a percentage of your total enrolled debt, while others charge based on the total settled debt or the reduced amount you ultimately pay back to the creditor.
Most companies charge 15% to 25% of either the total enrolled debt or the total settled debt.
In either case, that fee should be:
- Explained in detail before you enroll
- Covered by your monthly deposit, and funds in your dedicated account
- Never be paid upfront, before a settlement is reached
3. Evidence-Based Claims
Financial service providers like to make big promises, but it’s important to separate what is too good to be true from benefit claims backed by evidence.
For example, a debt settlement company should never claim that delaying payment to your creditors won’t affect your credit score or that they can stop creditors from contacting you or taking legal action. Debt settlement can’t shield you from changes to your credit score or stop creditors from calling you. And although it is rare, people enrolled in debt settlement are not protected from legal action related to that debt.
Good debt settlement companies are transparent about these facts because, for most people, the benefits of debt settlement far outweigh these risks.
The Federal Trade Commission recommends avoiding companies that:
- charges any fees before it settles your debts
- touts a “new government program” to bail out personal credit card debt
- guarantees it can make your unsecured debt go away
- tells you to stop communicating with your creditors but doesn’t explain the serious consequences
- tells you it can stop all debt collection calls and lawsuits
- guarantees that your unsecured debts can be paid off for pennies on the dollar
4. Strong Relationships With Creditors
One advantage of working with a debt settlement company is benefiting from its reputation and established relationships with creditors. Debt settlement companies with strong relationships with major creditors can leverage those connections to negotiate better deals for their clients.
Benefits of Debt Settlement Company and Creditor Relationships:
- Settlements can happen faster
- Clients can save more
How can you be sure that a debt settlement company has established relationships with creditors? Look for companies that have been in the debt settlement industry for a while, are accredited, and have positive reviews.
5. Responsive and Knowledgeable Customer Service
Responsive and well-informed customer service can make the difference between a positive and negative experience with debt settlement. During enrollment and throughout the program, customer service representatives should be easy to reach and have answers to any questions or concerns you may have.
Additionally, the company should have resources available to you like blogs, videos, FAQs, and a client dashboard.
6. Positive Ratings and Reviews
Customer experiences can tell you a lot about what you can expect from a debt settlement company. Research online reviews with the Better Business Bureau and check the Consumer Financial Protection Bureau’s consumer complaint database.