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Debt Negotiation Zone




How Do Debt Settlement Companies Make Their Money?

     With all the scams out there in the debt business you can never be too cautious about hiring someone to help you out when it comes to paying off your debt. There have been many people before you get scammed by some pretty unethical frauds so this article is intended to shed some light on how a legitimate debt settlement company should get paid for the work they do. Often these companies are run or owned by settlement attorneys. Attorneys make sure that they get paid. Here's how they do it.

How Do Debt Settlement Companies Make Their Money?

     In general, debt settlement companies make their money in two ways. The first way is by charging a percentage of the money that you owe collectors. If you owe $10,000 in collections and charged off credit cards, the debt settlement company might charge you 10% or $1,000 to settle your debt. The second way that they make your money is to charge you a percentage of the money that they save you that you owe to your collectors. For example, again if you owe $10,000 and they settle your debts for 60% of what you owe or they save you $4,000 then you will owe them a portion of the $4,000.

How Do I Pay the Debt Settlement Company For Settling My Debt?

     When you set up a debt settlement plan with most debt settlement companies, they will require you to have a bank account. You make monthly payments to the settlement company from your bank account via electronic transfer. The debt settlement company will keep track of how much you pay them.

     For the first few months that you are in the payment plan, your payments will go directly to paying the settlement company for the portion of their fee that is based on the total amount that you owe. You should know exactly how much this is before you start the program so you can keep track yourself.

What if I do not want to give the debt settlement company access to my bank account?

     Well you could have a difficult time getting a debt settlement company to work for you in this case. Follow the thinking here, you are hiring a company to settle your debt and you are not willing to give them access to your bank account. What message does this send to the company that you are trying to hire to help you? What are they to think? You are not paying your bills so what’s to stop you from not paying the debt settlement company after they have done some work for you? By giving them access, they have a better chance at getting paid for their efforts.


     One other option that you might consider is opening up another bank account that they can draw their payment from. You could set up an automatic transfer into this account and the settlement company can draw their payment out when it is due each month. This way, they cannot overdraw and get away with it because there is never enough money to take out except for the next payment that is due when you put it in there.

Why Would a Creditor take less than what I owe?

     The question I get asked most often is “why would a creditor will take less than I owe?” They will do this because they already lose billions of dollars to delinquent accounts so they would rather get something rather than nothing.

     Creditors may threaten you with suing you and they will drive you nuts on the phone. The truth is, though, that it is very hard for them to collect money from people. They may get a judgment from the court that orders repayment, but it can still be very difficult to collect. They may even be successful in garnishing your wages, but all you need to do is move to a new job and they have to start the process all over again. It is very expensive for the creditors to go to court. In many cases if they can get some money from you they’ll take it.

     Your best bet is to always pay your bills or work out a settlement. Each time that you pay of an old debt your credit score will improve. Once they are all paid you should be able to buy a home or a car just like everyone else.


Debt Free Dave has been in the mortgage and consumer finance business for over 10 years. He has a Finance and Real Estate degree from the University of Arizona. This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.

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