Posted on May 19, 2009 at 10:38 am Can someone give me an overview? Thank you!

Posted on May 19, 2009 at 10:47 am The majority of debt settlement companies work in a similar fashion, and their goals are generally the same. The main objective of a debt settlement company is to negotiate with the debtor's creditors to reduce the principle amount of debt that is owed. For example, if you owe Bank of America $10,000, a debt settlement company would attempt to negotiate that balance down to (on average) 50% of the total debt amount. Settlement payments are typically made in one lump sum, but some lenders and third party collectors will allow the debtor to pay off the settlement amount over a number of months. This is called a "structured settlement." Most debt settlement companies will operate as such- first, they will set the debtor up on a monthly payment program that they can afford. These payments accumulate in an escrow account that most companies will set up in the debtor's name. As money accumulates in that account, the settlement company will negotiate with the creditors and attempt to settle the debts (typically) one account at a time until they are all settled. It is important to keep in mind that in order for a lender or third party collector to accept a settlement for a pay off, the account does have to be delinquent. If the debtor is current on their monthly payments, the lender is still making interest off of that particular account and they have no incentive to reduce the principle balance. While there are many debt settlement companies out there, it is important to make sure you choose a reputable company to work on your behalf. Does anyone have any recommendations in regards to how a debtor can check up on a particular debt settlement company? Also, if you have any additional information in regards to debt settlement, feel free to contribute!

Posted on May 19, 2009 at 11:25 am I work for a debt settlement company and this is a good summary of how it works.  The only things I would add about the process is not every company sets up an escrow account  for their clients - some let the clients save the money in their own personal checking account.  In terms of looking for a good agency, I'd start by looking with the Better Business Bureau (BBB).  If they have a good record and not a lot of complaints, that's a good sign.  Also make sure they've been in business for a while.  The settlement industry is really new so you can't expect to find a company that's been around for too long, but you can definitely find a lot of companies that have been in business for at least 3 to 5 years.  Most of the old ones have been around since 2002 or so.   

Posted on May 19, 2009 at 11:30 am Another thing I forgot to mention...a lot of debt settlement companies don't actually do the servicing for the clients they enroll.  So they just sign you up and the customer support are handled by another company.  Be sure to ask about that too before you sign up because if they outsource the negotiations to another company they're more likely to have an inflated BBB record  since the complaints go to the servicing company, not the company or sales front that enrolls you.    

Posted on May 20, 2009 at 6:50 am Thank you Doug for your insight. I also have a question- how much do debt settlement companies usually charge for their services? I have heard they can be expensive. Is it worth it to hire a debt settlement company for a fee?

Posted on May 20, 2009 at 2:20 pm Hi Erick- I believe that the majority of debt settlement companies charge roughly 15% of the total debt amount for a fee. Usually the companies will spread their fees out over an extended period of time and roll them into the person's monthly payment. I also know that some settlement companies charge a percentage of the settled amount. Usually, the percentage they take if that is the case is between 20-25% of the settlement amount. Different settlement companies will different fee structures, so make sure you do your research to find the best company for you considering your circumstances! 

Posted on July 7, 2009 at 8:40 am Thank you for explaining how debt settlement companies work. I have another question though- outside of how do debt settlement companies work, how can you find out if the debt settlement company is good?

Posted on August 25, 2009 at 10:12 am How do debt settlement companies work for someone who is trying to catch up on their monthly payments?

Posted on August 26, 2009 at 1:51 am HalfCup- a debt settlement company is good if it is a member of the BBB and the TASC. Of course that just doesn't end there--the company must have good ratings with the Bureau and minimal consumer complaints.

Posted on August 28, 2009 at 3:03 pm I work for a Debt Settlement Company as well. We work with a Law Firm so if any situations should arise like lawsuits or judgments our clients have legal assistance to cover them. 15% settlement fee as well. Debt Settlement is not a program if you are trying to "catch up on your payments" it is a Hardship based program designed to help consumers who have gotten into a bind..and with all interest..fees etc that CC companies charge they make it impossible to catch up and instead u pay min payments for 24 years on a 9000 debt and your total payout would be over 20000 including interest and fees. If you can stand to take a hit on your credit report for a 2-4 years you can settle a 9000 for about 4000 including settlement fees and you can rebuild your credit once you settled the debt:)