5 questions to ask before enrolling in a credit card debt forgiveness program
If you're struggling to make ends meet and high interest credit card debt is only adding to your financial hardship, you may be thinking about enrolling in a debt forgiveness program. These debt relief services typically offer meaningful savings by negotiating your principal credit card balances on your behalf. If those negotiations are successful, you could end up paying far less than you owe to pay your credit card debt off.
But, while there are regulations surrounding debt forgiveness (the service can't legally charge you a fee for negotiations until they've successfully settled your debt), they're also individual companies. So, it's important to understand the details of the program you're considering before signing up.
One of the best ways to form an understanding of those details is to ask questions. Below, we'll break down which questions to ask before you enroll in a debt forgiveness service.
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5 questions to ask before enrolling in a credit card debt forgiveness program
"Whether you're communicating with a debt forgiveness company in-person or over the phone, there are several things you should understand before signing up," explains Dawn-Marie Joseph, founder of the financial planning firm, Estate Planning & Preservation. Ask the questions below to make sure you understand exactly what you're signing up for.
How long will it take to pay off my debts?
One of the goals credit card debt forgiveness companies aim to achieve is to get you out of debt as quickly as possible. But, some plans will take longer to complete than others. So, it's important to ask how long it will take to pay your debts off.
You should "understand how long it will take to finish the program," says Joseph. "Debt settlement can be a long process."
Keep in mind that if you're not happy with the answer, you may be able to change it. The length of time it takes to pay your debts off is largely dependent on the amount of money you pay per month. So, if the debt forgiveness provider tells you it will take four years, and you'd like to be paid off in three, ask what you would have to pay to eliminate your debt in three years to see if doing so is feasible.
Pay your credit cards off faster with a debt forgiveness service.
How much money will it cost me to use your service?
Most debt forgiveness companies are for-profit companies. So, you can expect to pay a fee for their services. But, that fee varies from one provider to the next. "You should know whether there are any associated costs," says Joseph.
Debt forgiveness companies typically charge between 15% and 25% of the debt you enroll in the program (once your accounts are settled). So, it's best to try and stay on the low end of those fees.
What happens if I'm unable to make a payment?
Credit card debt forgiveness services are typically best for consumers who are having a hard time meeting their minimum payment obligations. And, while these services can reduce the monthly cost of your debt, you may still have a difficult time making your payments occasionally.
So, be sure to ask what happens if you're unable to make a payment. While some companies may be willing to work with you, others may be more strict in terms of their stance on missed payments. Late fees could occur if you don't pay what you agreed upon.
How are my payments saved for my settlement?
Debt forgiveness companies typically instruct you to forgo payments to your lenders. Instead, you'll send payments to your debt relief provider that will be saved on your behalf until you have the money you need to pay a settlement.
Even though you're saving that money to settle your debts, it's yours until that settlement is achieved. So, it's important to understand what the company you work with plans on doing with it. In most cases, your provider will hold your payments in a savings account. But, that may not be the case in all circumstances.
What happens to the money I've saved if I stop making my payments?
Since the money you save is yours until the debt is settled, it's important to know what happens to it if you stop making your payments. After all, in a best case scenario, your income may improve and you may decide you don't need settlement services anymore. In a worst-case scenario, you may decide that bankruptcy is your better option.
In either case, you'll want to make sure that the money you've paid toward your potential settlement is returned to you. But, there may be cancellation fees to cover before the money is returned. So, make sure you know what happens in the event that you stop making payments before you enroll.
The bottom line
Debt forgiveness can help you eliminate troublesome credit card debt. But, it's important that you're completely aware of what you're signing up for. Be sure to ask the questions above before you enroll in a debt forgiveness service. Chat with an expert about your debt forgiveness options today.
