You, like many Americans, are starting to feel desperate about your debt. You may even be asking: Am I going to have to file for bankruptcy? Of course you want to explore all of your options before pursuing that as a last resort. After all, you want to keep your assets and avoid having a bankruptcy mark on your credit report for seven to 10 years, if possible.

Debt resolution, also called debt settlement, is an alternative to bankruptcy worth exploring. It only works on unsecured debts — like credit cards, medical bills and personal loans — and is generally an option for people who are struggling to make the minimum payments on their accounts.

Here’s an overview of what you can generally expect from debt resolution services.

Do Your Homework Before Pursuing Debt Resolution

At its core, debt resolution, or debt settlement, is about negotiating with creditors to see if they’ll accept less than you originally owed. It may be surprising to learn that they often will, if they believe you’re at risk of defaulting, in which case they’d get no payment at all. Some people decide to try negotiating on their own, while others sign up for debt resolution services that’ll handle the actual negotiations.

It’s imperative to make sure any third-party debt resolution firm you work with is legitimate. Look over other clients’ ratings, reviews and testimonials online. Check to make sure any program you’re considering is in good standing with the American Fair Credit Council, which is a trade association that holds its members to certain standards. 

Doing your homework also means making sure you’re a viable candidate for debt settlement. Are you struggling with primarily unsecured debts? Mortgages, auto loans and federal student loans — among other types — are ineligible.

Have you squeezed every penny out of your budget but still find yourself struggling to pay the minimum amount due on your accounts? People with debt-to-income ratios (DTIs) between zero and 15 percent are generally better off paying down debt strategically on their own. Those with a DTI between 15 and 39 percent should explore options like debt management through a credit counseling agency or taking out a consolidation loan. Candidates for debt resolution, also called debt relief, usually have a DTI around or in excess of 40 percent.

What the Debt Resolution Process Entails

After determining you’re a good fit for debt resolution — and gaining a deeper understanding of the pros and cons of this method — you’ll speak with a consultant to confirm you’re a candidate. This expert should answer your questions and provide helpful information freely without requiring you to provide your personal and financial information.

If you proceed, you’ll be responsible for depositing a certain amount of money each month in a dedicated account. The amount of these deposits will depend on your income, how much you owe and other factors. Once this account reaches a certain threshold, negotiators will contact your creditors and try to reach a settlement. The funds you’ve deposited into your account will go toward satisfying this settlement.

You must authorize each agreement, after which the deal will go through and your creditor will report the account as being paid to credit reporting bureaus. At this point, you can expect to pay debt settlement firms somewhere around 15 to 20 percent per completed negotiation. This process may need to repeat multiple times until all your accounts have been addressed. Be aware a reputable company will never ask you to pay advance fees; it will only collect fees after a settlement has been reached.

Knowing what to expect from debt resolution services before signing up will help you make the most of your experience while avoiding misunderstandings.

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