How Debt Collection Agencies Collect Fees
Debt settlement is the process in which a creditor agrees to accept less than the full amount owed, but considers the debt cleared. The debt settlement companies we see advertised in print and on TV claim to negotiate reductions of up to 50 percent.
Repayment plans can take between two and four years. However, settlement companies charge fees for their services, usually through one of two approaches. In one approach the company’s fee is a percentage of the total debt, typically between 18-30 percent. As a part of other approach the company bases their fees on the amount of debt reduction they can negotiate. The fees in this case be as high as 35 percent.
Many debt settlement companies charge a monthly fee as a part of the program. The fees range from $18-$89 a month. It’s unusual for settlement fees to total thousands of dollars.
Some debt settlement companies collect their fees before your creditors see a dime. It could be months before your creditors secure payments. Beware! Sometimes debt collection agencies suggest you stop payments to credit card companies and begin making payments into a third party account. They then attempt to negotiate a settlement for you with your creditors once enough money is in the account. This may take several months, depending upon the amount of the debt. In the meantime, your debt continues to grow, penalty and interest fees continue to accrue. Now you owe more than when you started out. Worse yet, legal actions such as wage garnishment or judgment may be filed against you.
Most consumers don’t know that that debts paid off through settlement show up as “paid off by settlement,” on your credit report. If you apply for loans or credit when reviewing your report the prospective lender will see the debt was paid through settlement. This indicates that your repayment didn’t cover what was owed, and the creditor accepted lesser amount. This will affect the decision to lend or grant credit, a fact not openly shared by a number of debt collection agencies.
The debt settlement industry is new and largely unregulated. There are a number of new and inexperienced companies who are unfamiliar or simply don’t care about the laws and regulations that should guide the industry. It’s a recipe for disaster for the uninitiated, uninformed, in debt consumer. If you decide to use a debt collection agency to clear your debt issues do your homework. Make sure your money gets put in a third party account and that no money is paid to your agency before payments to creditors are made. Set a reasonable time frame to pay off the debt. Make sure your agency answers all your questions before you agree to their terms. Only then will you feel confident that you’re on your way to recovery.
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