5 Criteria for Enrolling in a Debt Settlement Program

Everyone who’s ever gotten themselves out of debt had to reach a moment where they’d finally “had it.” That breaking point looks different for everyone, but it’s usually the thing that motivates people to finally take action. 

The next step is figuring out how you’re going to do it. 

As you’re researching, you may come across debt settlement as a potential avenue for eliminating what you owe. This solution has worked for thousands of people, but it’s not for everyone. Here are five criteria for enrolling in a debt settlement program that can help you decide whether it’s worth pursuing.

#1: You Have Unsecured Debts

The first factor to consider is whether or not your debts are secured or unsecured. The simplest way to define an unsecured debt is one without any collateral backing it — the only thing tying you to the debt is your credit rating and your word.

Mortgages and auto loans are two major examples of secured debts, both of which are ineligible for settlement. Unsecured debts which typically qualify for settlement programs include credit cards, medical bills and personal loans. Whether student loan debt qualifies depends on the program — some private student loans may work, while federal loans will not.

#2: You’re Unable to Pay Off Debts Without Help

While legitimate debt settlement has helped millions of people pay off billions in debt, this solution is more of a last-ditch effort to avoid bankruptcy than a first-line strategy. You may be a good candidate if you are unable to pay down your own debts within five years, regardless of how much you rework your budget.

If it’s feasible to handle debt repayment yourself, consider a targeted course of action like avalanching your debts. This is another name for tackling them from highest interest to lowest while making minimum payments on all of them save the one with the highest rate.

Settlement may be up your alley if you genuinely need help in repaying debts — and either can’t qualify for bankruptcy or want to avoid filing if possible.

#3: You Have a Certain Amount of Debt

Most programs require a minimum amount of debt to enroll. For instance, Freedom Debt Relief recommends consumers have at least $7,500 in debt to join. If you’re dealing with debt less than the threshold for settlement, look into credit counseling or debt management instead.

#4: You Can Commit to Monthly Payments

Upon enrolling in debt settlement, you’ll be expected to make monthly payments into a special purpose account. These funds will serve as your bargaining chip with creditors, and settlement success hinges on saving up enough to kick off negotiations.

Reputable debt settlement companies will tell you exactly how much you can expect to pay up front so you can decide for yourself whether to commit. It’s important to have a reliable plan for coming up with these payments, as paying late or missing them altogether will jeopardize your eligibility to continue.

#5: You’ve Suffered a Financial Hardship

Finally, debt settlement enrollees have generally suffered a recent hardship that has affected their ability to keep up with bills. Common examples include divorce, spousal death, loss of income or unanticipated medical bills.

Given the average emergency room bill in America was somewhere around $1,389 in 2017 — a 176-percent increase over a decade —  it’s easy to see how serious financial hardship can strike anyone at any time in various forms.

If you meet these five criteria for enrolling in a debt settlement program — and have weighed the potential benefits against the risks — the next step is speaking with representatives from reputable agencies, being sure to get all the information you need to make an informed decision.