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In dealing with consumer debt, every single day, I’ve seen so many scams and companies that take advantage of people in trouble that it’s about time I wrote a comprehensive guide about what to look for and how to identify an excellent debt relief company.
You will find that nearly all debt relief companies today sadly fall short of the steps in this guide. Unfortunately, the for-profit and nonprofit debt relief providers are still not putting the consumer’s best interests first and offering a fair and balanced review and recommendations. We can only hope this guide and a commitment to do better will change things in the future.
Consider this your preflight checklist, just like pilots use, to ensure you embark on a safe journey out of debt. Without checking things out first, you don’t want your pilot to take off with you aboard.
If you follow this guide and each step in it, I’m confident by the end; you will have selected a debt relief company that is right for you, and I’ll feel comfortable you are making the right choice about how to deal with your debt.
The Most Important Thing to Know: This isn’t a blender you are thinking of buying here. Instead, this is a service that can have a profoundly negative impact on your life and financial health if you make the wrong choice or select the wrong provider.
Selecting the right debt relief option and debt relief provider for you will be one of the most important things you do in your life. You owe it to yourself to spend some time and follow this guide, step-by-step.
Step 1 – Homework
To make sure you are first armed with a general understanding of all of your debt relief options, I’d suggest you read the following articles:
- How to Get Out of Debt. The Honest and Unvarnished Truth
- How Do I Get Out of Debt Quickly? Change Your Mindset
- The Saddest Avoidable Mistake People Make When Getting Out of Debt
- The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy.
Those articles will give you an excellent overview of what we need to deal with to get you moving in the right direction.
Step 2 – Check Out All Options
Use the free How to Get Out of Debt Calculator to review your options. The calculator will give you a rough idea of the pros and cons of each major solution.
Step 3 – Tip Toe Contacts
Start contacting a few debt relief companies that provide the solution you believe is right for you based on what you learned above. Talk to at least three.
This might be a credit counseling group, a debt settlement company, a bankruptcy attorney, or in some cases, an unsecured debt consolidation loan company.
When you contact a credit counseling organization, debt settlement company, or bankruptcy attorney, you need to be aware of the following:
- Each debt relief provider will naturally try to push their solution as the best. It’s a natural bias or aggressive sales pressure in action.
- Most often, the debt settlement representatives you speak with are commissioned salespeople. Therefore, they are motivated to make the sale even if it isn’t your best option.
- While they are not supposed to be commissioned salespeople, credit counseling representatives are motivated to enroll you in their debt management plan. That’s how those nonprofit groups make money, and employees stay in good graces.
Step 4 – What a Good Company Should Do
When contacting companies, please don’t commit to working with them. Instead, interview them and observe how they handle your situation.
A good debt relief company should do the following in their initial contact with you before they try to sell you their solution.
The representative should:
- understand what your current financial situation is, including what type of debts you have and how much you owe to all your creditors, not just your unsecured creditors;
- develop a plan of action that deals with all of your debt and not just some of it;
- understand what your income is and what the chances are of steady income. If you are currently on a short-term assignment, SSI, social security, worried your job may end shortly, or on unemployment, the company should NOT try to sell you any debt solution that requires you to make monthly payments;
- factor in the money you need to save each month in a savings account to build your emergency fund;
- If you are planning to retire in the next fifteen years and are not on track to have sufficient retirement savings, you should not enroll in a monthly debt repayment payment program. You must think about the future and plan first for retirement. Otherwise, you will lose your excellent chance of building critical retirement savings. Lost time cannot be replaced.
Retiring without sufficient funds can be significantly dangerous and detrimental, especially as we face uncertainty over future social security benefits and medicare protection
- make a thorough assessment if your debt is even legally collectible before you begin to repay it. The representative must understand if a debt is past the statute of limitations or time-barred and you can’t be sued over it;
- make sure any debt you want to enroll in the solution is a valid debt. Old collection accounts that have been sold and sold again are not valid, collectible, or correct; until they can be verified, they should not be included unless they have been validated. For more on debt validation, see this article and also read How to Dispute and Ask a Debt Collector to Validate a Debt;
- take a look at your situation and household situation to see what debts need to be included to allow you to accomplish your goal. There is no need for spouses to both enroll if the debt is only primarily in the name of just one person;
- educate you about how long it will take to recover from the debt relief solution they are trying to sell you. Compare this to a chapter 7 bankruptcy which takes just two to three years to recover from and restore credit fully;
- review your options, like an unsecured debt consolidation loan if you are current on your debts but need help lowering the payment;
- encourage you to speak to a qualified tax professional before settling any debt to understand if there will be a resulting tax bill. It does not always;
- get a thorough understanding of what you are trying to accomplish in your debt relief efforts. They need to understand if you want to avoid getting sued over your debt, need a second chance and fresh start by eliminating your debt quickly, want to rebuild your credit quickly, need to reduce your monthly payments or eliminate them, need to save money for a financial safety net, need to save for retirement, have any looming medical issues that might cost a lot of money, need to understand if you have adequate health insurance, etc.
Any credit counseling group, or debt settlement group that tries to sell you their solution without completely understanding what your needs and obligations are moving forward, should be avoided; and,
- get a complete understanding of your income and expenses. In this case, a quickie guesstimate budget will not be sufficient. You need a detailed look at what you spend monthly, including the money that leaks out of the ATM or your pocket. If a debt relief company asks you to guess your budget, that’s a warning sign to run away because they may be “qualifying” you for their product based on inaccurate figures, which will just set you up for failure.
Only after doing all the steps above can a debt relief provider develop a plan of action or recommend a solution that best meets your needs.
Step 5 – Putting You First
Before recommending any solution to you, the debt relief company, after gathering all of the information above, should help to honestly educate you about your range of options before enrolling you into their program. Unfortunately, I’ve written about many companies that flat-out lie about the other solutions because they want to sign you up.
In general, credit counseling groups lie or mislead people about debt settlement, debt settlement companies tell partial truths about credit counseling, and both groups try to create unfounded fear about bankruptcy.
This means the company should encourage you to contact other debt relief solution providers first before you make any decision to join their program.
This is important because people often have incorrect assumptions or preconceived notions about other debt-relief options, like bankruptcy. As a result, people will notoriously disregard bankruptcy as an option because of subconscious and unfounded emotional fears or worries, even though it makes the most financial sense in their situation.
I’ve seen so many people cross bankruptcy off their list for fear it will ruin their credit for a long time. That’s just not true. Or they believe they have an ethical duty first but have not considered all the facts. Please read Everything You Always Wanted and Needed to Know About Bankruptcy before you make any assumptions about bankruptcy.
If you contact a credit counseling group, a trustworthy credit counseling group will strongly encourage you to talk to a bankruptcy attorney and a debt settlement company before you enroll. However, they should not push you or even let you enroll till you’ve thoroughly researched your options.
Don’t rely on what they have to sell you, do your homework. People motivated to sell your product will almost always tell you what they think you want to hear to seal the deal.
Suppose you talk to a debt settlement company and think that’s the right solution. In that case, a reputable company will encourage you to speak to a credit counseling group and bankruptcy attorney before you signup.
And if a debt settlement company tries to sell you a repayment plan based on arbitrary monthly payments over three or five years, that could be a massive problem for you and lead to you getting sued by a creditor or three.
The importance of talking to these other debt relief solution providers can’t be understated. You must speak with these providers to know the solution you decide is right for you based on your unique circumstances and facts.
Step 6 – Making Room for Monthly Savings
Once you’ve decided on what solution you feel is right, based on your research, make sure if it is one, like a debt consolidation loan, credit counseling, or debt settlement plan that requires monthly payments, that you can afford to make the payment and save money each month at the same time.
While you are digging out of debt, it is imperative to be able to continue to build your financial emergency fund so that any unexpected financial surprises don’t wind up on credit at the same time you are trying to get out of debt. If so, that will destroy your progress. Also, don’t forget that continued retirement savings must be part of the plan.
If you can’t see how you will save money and make payments simultaneously, you probably have not selected the right solution for you.
In addition, make sure that you feel incredibly confident that any monthly payment solution will be easily affordable through the end of the plan. For example, a five-year repayment program that fails in year two because of a job loss isn’t helpful. In that case, you probably just lost two years of your life to the wrong solution.
Step 7 – Sleep On It
Once you’ve completed the steps above and feel like you’ve made the best decision for yourself and your situation, take another day or two and sleep on it before you commit to doing anything. Except for the threat of an immediate foreclosure, there is little reason to rush into making a decision that might profoundly impact your life.
Any company that tells you, you must enroll now, is not to be trusted.
Step 8 – Checkout the Company
You’ll also want to do some due diligence and follow this guide to check out the debt relief company you’ve selected.
If you want to check out the company, even more, follow this guide, How to Check Out a Business or Company to Avoid Getting Scammed or Ripped Off.
Step 9 – Don’t Be Pushed
Now that you’ve done all the work up to this point and feel it is time to enroll in your debt relief program, your job is not over.
If the debt relief company tries to push you to enroll online and make you sign forms without allowing you to read through the agreement on your own time and then ask questions first, they should be avoided. Some companies will have sales representatives tell you what the contract says and push to enroll you online in a matter of minutes.
If the debt relief company allows you to enroll on the same day you contact them, that should be a warning sign. But, again, the goal here is not to rush. It’s to make the right decision about what is right and best for you.
Credit counseling and debt settlement contracts are almost always packed with language that protects the credit counseling organization, debt settlement company, or another provider. However, the agreement is not written to protect you.
It does not matter what you’ve been told on the phone. The contract will be what you agree to. You will want to read through the contract carefully and look for the following items:
- Are the services you think you are buying clearly defined and described in the contract?
- Are the total fees and costs disclosed, and do they match what you believe they should be?
- Is there a written policy regarding refunds or cancellations that you agree to?
Step 10 – Time to Relax
If you’ve followed all the advice and steps above, by the time you reach this point, you should feel confident you’ve selected the right solution for you and the right company to deliver it.
Congratulations, you’ve just made a smarter move and taken greater care in finding your solution than 99 percent of other people in the same situation.
Your chances of successfully resolving your debt crisis are much higher than they would have been if you had not followed this guide.
One to Ponder
Suppose any debt relief provider discourages you from examining every option before forcing you to decide. In that case, that is NOT in your best interest, and you have to ask yourself why they are doing that.
Your financial life is every bit as important as your medical life. Both can significantly impact the quality of your life if misdiagnosed and mistreated.
In seeking the best and most appropriate treatment for your financial illness, you should look for the same care and examination as you would expect from a doctor in diagnosing a critical medical problem.
You wouldn’t want your doctor guessing about your condition. Instead, you would expect your doctor to thoroughly examine and then refer you to the most appropriate specialist if you needed a treatment they did not provide.
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
Do you have a question you'd like to ask me for free? Go ahead and click here.
P.S. Did You Get Screwed by a Debt Relief Company?
If you are just now reading this guide and feel like the debt relief company you enrolled with misled you about their company and services or sold you into the wrong solution, , please complete this form so we can share your experience with others.
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