It can be challenging to stay afloat financially when you have excessive debt. If you’re saddled down by credit card and loan payments, debt settlement can help you find relief. But maybe you’re torn between hiring a debt settlement attorney or using a company to do the legwork for you?
Read on to learn what each has to offer and how to make an informed decision.
What is Debt Settlement?
Debt settlement helps reduce what you owe on unsecured debt. Each time you settle a debt, the lender or creditor allows you to pay a fraction of what you owe and forgives the remaining balance. You can take a DIY approach, hire an attorney or enlist a debt settlement company to do the work for you.
(Note: If the forgiven amount is over $600, you could be on the hook for federal income tax. It’s equally important to know that creditors and lenders aren’t obligated to accept settlement offers).
What Are the Benefits of Debt Settlement?
Consider these key advantages when deciding if debt settlement is best for you:
- Cost-savings: You could reduce the amount you owe by a sizable amount and save a bundle in interest.
- Streamlined repayment process: Most consumers cease payments on the accounts enrolled in a debt settlement program to expedite the process. Consequently, only one payment is made each month to a dedicated account used to cover settlement offers.
- Expedites the repayment process: You could settle your debts in just 24 to 48 months if you commit to the program and have the right attorney or debt settlement company working for you.
- Helps avoid bankruptcy: Debt settlement could be an alternative to bankruptcy that could potentially have a less negative impact on your credit.
Debt Settlement Attorneys
Here’s a breakdown of what debt settlement attorneys do, how much they charge, and how to decide if hiring one is most ideal.
What Does a Debt Settlement Attorney Do?
Debt settlement attorneys work directly with lenders and creditors to settle your unsecured debt. They tackle credit card debt, medical debt, private student loan debt, and other forms of debt not secured by collateral.
What is the Typical Process of Working with a Debt Settlement Attorney?
They’ll tailor a payment plan that fits your budget and increases the likelihood of meeting your debt goals. A knowledgeable debt settlement attorney can also offer legal advice regarding your situation, help you avoid wage garnishment, and represent you in a court of law if you’re sued by a creditor.
How Much Does a Debt Settlement Attorney Cost?
You generally won’t pay to retain a debt settlement attorney as many work on a contingency basis. This means they only collect if you win your case and a settlement is reached. The fee could be based on:
- A percentage of the settlement amount for each account
- A percentage of the amount you save when debt is settled
- A flat fee determined by the number of lenders and creditors you have
Some attorneys also charge by the hour, so it’s best to inquire about the fee structure before signing a formal agreement.
Should You Hire an Attorney for Debt Settlement?
It depends on your financial situation. However, if you have an excessive amount of unsecured debt and lack the funds to make payments, hiring a debt settlement attorney could be a wise financial move.
Debt Settlement Companies
You can also hire a debt settlement company to get a handle on your unsecured debts.
What Do Debt Settlement Companies Do?
Similar to debt settlement lawyers, debt settlement companies also negotiate your unsecured debt with lenders and creditors.
What is the Typical Process of Working with a Debt Settlement Company?
Here’s what to expect when you hire a debt settlement company:
- Step 1: Connect with a Certified Debt Specialist to review your situation, discuss debt goals and devise a plan of action.
- Step 2: Make monthly payments to a dedicated account as specified in the agreement.
- Step 3: The debt settlement company starts debt negotiation with creditors when your dedicated account reaches a certain balance.
- Step 4: Review settlement offers when they are presented to you. If you agree to the terms, the funds in the dedicated account are used to cover the settlement amount.
- Step 5: Continue to make monthly payments to your dedicated account until every enrolled debt goes through the negotiation process.
How Much Does a Debt Settlement Company Cost?
Most debt settlement companies charge between 15 and 25 percent of the settlement amount. However, you won’t pay until a settlement agreement is finalized, and the fee is typically deducted from your dedicated account.
Should You Work with a Debt Settlement Company to Settle your Debt?
You can negotiate your debts on your own or hire a debt settlement company to do the work for you. The latter makes sense if you have a sizable amount of unsecured debt and aren’t comfortable reaching out to lenders and creditors on your own.
Furthermore, reputable debt settlement companies have extensive experience conducting consumer negotiations and know what it takes to get results. There are no guarantees the collection calls will stop or the creditors will budge and accept the proposed offers right away. However, you can rest assured that they’re working diligently to help you get the relief you deserve.
