Is a Debt Settlement Lawyer a Better Alternative?

Should you use a debt settlement lawyer or a debt settlement company to represent you with creditors?

Most people go right for the debt settlement companies, but that could be a huge mistake. Don’t get me wrong. I’m like every other red-blooded American. I’m not crazy about attorneys. But this is a case where it pays to reconsider. And you have to do everything you can to avoid debt relief scams (which debt settlement companies are known for.)

I understand that you might be in real trouble and the last thing you need is legal bills.

You might be desperate to find an alternative to bankruptcy. And you might be tempted to hire a debt settlement company. But before you do, make sure you understand the risks and costs.

First, know that creditors are logical. They’d prefer to get something rather than nothing. They don’t want to force you into bankruptcy.

That’s why some companies will agree to forgive some of your debt if you can come up with some portion of what you owe. Once you come to terms, they’ll report to the credit bureaus that your debt is settled. The debt balance will be zero, but any prior history of payment problems will stay on your report. So you’ll still need to find ways to improve your credit score.

As you might imagine, creditors don’t advertise that they’re open to negotiating debt settlement. They make it tough to do and don’t do it at all if you are current on your debt.

If you’re between a rock and hard place and you turn to professionals for help, here’s what to consider:

1. Costs

Some lawyers work on fixed fees. Others work at an hourly rate. In most cases, you’ll get an idea of the total cost before they go to work.

But most of the debt settlement companies that provide these services aren’t very straightforward in telling you what they charge. Many charge 20% of the debt and you must pay this upfront.

Others only charge you a percentage of the debt they’ve saved you. But it’s usually around 25% of that savings. On top of that, they charge you set-up fees and monthly charges.

If you sign up for one of these services you’ll have to pay those costs first. That means you may have to save for a long time to pay them off before you start paying off the settled debt. Ouchie. Before you sign up for one of these services, make sure you understand exactly how they charge and what the total fee is.

That’s easier said than done. Many of the shady firms keep this number from you. If that’s the case, simply walk. Never do business with people who aren’t upfront about your costs…no matter what they promise.

Finally, compare your options.

Let’s say the company wants $4,000 for their services. Talk to an attorney too. Get an estimate. That $4,000 can buy a lot of time and might be better spent with a sharp lawyer.

2. Services

Get an estimate of when they’ll complete their work. Often, the debt settlement companies contact your creditors and get the debt frozen but don’t actually do anything to negotiate the debt down. The only thing they actually do is withdraw money to pay themselves.

3. Make Matters Worse

People hire debt settlement companies because they don’t want to get those pesky collection calls. Understandable.

But sometimes when the creditors find out you’re working with a debt settlement company, they turn up the heat. They might send the debt to a collection agency quicker or take you to court. Oh…and by the way…as soon as the creditor takes you to court, the debt settlement company drops your case because they aren’t attorneys and can’t represent you or provide legal advice. Say goodbye to the money you spent with them.

4. Dropouts

Many of these companies simply work the numbers. They know that a high percentage of the people who sign up for their services will get tired of paying those fees and simply give up. Of course, when they do, the debt settlement company keeps all those fees. And you are left out in the cold. Brrrrrr.

If you look at the complete picture, and you’re considering getting professional assistance with your debt, you owe it to yourself to at least consider working with an attorney.

Of course, the best alternative is to never get into debt by managing your spending. Even if you need to settle your debt, it’s crucial that you use tools to make sure you never get into debt again.

What has been your experience? Have you worked with a debt settlement company or lawyer in this regard? What was the outcome? Would you do it again?

Photo by Claire DancerFlikr