Debt Settlement FAQ

Debt Settlement FAQ: What is debt settlement?

Answer: Debt settlement is a negotiation process. The process entails a person paying only a percentage of their unsecured debt to completely eliminate the balance owed.

For example, the cost to settle with creditors, including the service fees, may be less than 60% of your debt. Debt settlement allows clients to eliminate debt easier, faster, and for significantly less money than paying the balance without debt relief services. Most people seek debt management services for the following benefits:

  • Lower interest rates
  • Fixed interest rates
  • Convenience of working with only one creditor
  • Paying one amount you can afford
  • Satisfying creditors

 

Debt Settlement FAQ: How does debt settlement work?

Answer: Upon enrollment into a debt settlement program, you begin making monthly payments into a settlement savings account.

While money accrues in the debt savings account, attorneys and/or certified negotiators work on your behalf to negotiate a lesser debt amount than originally owed to each creditor. Your negotiation team also initiates debt validation, requiring creditors to justify and confirm the interest terms of your debt. This validation process leads to lower interest rates on your debts.

Once your negotiation team and creditors agree upon new loan terms, the debt settlement company uses your debt savings account to pay off the balances. This debt settlement procedure continues until all unsecured debts in the program have been eliminated and each account balance is settled with no debt remaining.

Click here to read step-by-step how the debt settlement process works.

 

Debt Settlement FAQ: How long is the average debt settlement program?

Answer: The time needed to complete a debt settlement program depends on the size of your monthly payment and the income you have available. The average length of time needed to complete a debt settlement program is between 18 and 36 months.

 

Debt Settlement FAQ: What if my creditors will not settle with the debt management company?

Answer: There are very few circumstances where a creditor will refuse to settle with the debt management company. As with any negotiation, there are offers and counter-offers, and in the majority of cases, creditors and negotiators reach a settlement agreement. Creditors realize debt settlement is in their best interest because if a debtor files for bankruptcy, most often, the creditor will be left with nothing. Your creditors are motivated towards resolution and they have urgency as well.

 

Debt Settlement FAQ: Will my creditor continue harassing me by phone, mail, and email?

Answer: Your creditors may call you for the collection of the debt until the debt is no longer owed. The attorney and/or certified negotiator works on your behalf, directly with your creditors. As creditors are notified for negotiations, collection activity will cease. Any collection calls from your creditors should be immediately reported to your debt settlement service provider for swift action.

 

Debt Settlement FAQ: How will debt settlement affect my credit?

Answer: Let’s briefly examine the primary factors that determine credit scores and how debt settlement is likely to affect each factor.

Five Most Important Factors Determining Credit Status:

Payment History – are your monthly payments on time or late? To be a candidate for a debt relief program, most debt settlement programs require debt payments to be overdue. Without a debt relief program, it is likely your overdue payment will continue indefinitely, damaging your credit long-term. Debt settlement programs renegotiate your debt quickly so you can begin making timely payments every month until your debt is paid off completely.  During the time of the negotiation process, the overdue payments will continue, but timely payments will commence immediately thereafter.
Credit Balances – how much credit are you using of the total credit available to you? The majority of people entering a debt settlement program already have extremely high credit balances. A debt settlement program renegotiates your debt, reducing your credit balances.
Credit History – how long have you had credit and in what standing? During the negotiation process, overdue payments will continue and appear on your credit history. Immediately upon negotiations succeeding, your credit balances are reduced and on-time payments begin consistently, every month, until your debt is paid off completely.  These timely payments are reflected on your credit history.
Credit Applications – how often are you opening and closing lines of credit? How often are you opening and closing lines of credit? A requirement of debt relief programs is that you leave only one credit card open outside of the debt management program. During the debt settlement process, you will not be opening new lines of credit.

Credit Diversity – what kinds of credit have you established; for example: a mortgage, credit card, and student loan? The debt relief program should not affect this factor since you will not be opening new lines of credit.

 
Debt settlement programs help you pay off your debt as soon as possible. During the program and once you are debt-free, you can begin the process of restoring your credit to good standing.
 

Debt Settlement FAQ: Why don’t I file Bankruptcy instead of entering a debt settlement program?

Answer: In most cases, financial hardship is only temporarily, and due to some unforeseen complication in a person’s life or financial situation. Many people choose to file bankruptcy without exploring other debt relief options. Bankruptcy should be a last resort only; after all other options have been explored. Furthermore, bankruptcy may include many undesirable consequences:

  • Long-term negative credit status.
  • A bankruptcy can remain on a credit history for up to 10 years.
  • Cost of hiring a bankruptcy attorney.
  • Repossession of home and possessions, such as cars and personal items.

 

Debt Settlement FAQ: Can I include a secured debt in a debt settlement program?

Answer: No, debt settlement programs only work with unsecured debt. Common forms of unsecured debt include: credit cards, personal loans, and accounts sent to collection agencies that are not backed by any form of collateral.

 

Debt Settlement FAQ: How much time does a debt settlement program take to resolve all of my debt?

Answer: Most debt settlement programs are between 15 and 36 months, depending on the amount of debt and the monthly payment agreed upon.

 

Debt Settlement FAQ: What is the cost of a debt settlement program?

Answer: Most debt settlement service providers charge a flat fee and percentage based on the amount of debt you enroll in the program.

 

Debt Settlement FAQ: What if I miss a settlement program payment?

Answer: Most debt settlement service providers will continue to work with clients who have legitimate reasons for missing payments and who demonstrate commitment to the success of our debt settlement programs.

 

Debt Settlement FAQ: Will I really be debt free at the end of the settlement program?

Answer: All accounts you entered into the program will be reported “settled” with a zero balance and you will be released from any further obligation.

 

Debt Settlement FAQ: How does Debt Settlement compare vs. Debt Consolidation?

Answer: In a debt settlement program, clients can eliminate debt faster and for a lesser amount than what is originally owed, thereby saving their hard-earned money. In debt consolidation, a person pays the entire amount owed, plus interest. Moreover, few debt consolidation programs exist anymore. It is now common for debt relief companies to use “debt consolidation” to describe debt management programs. Consumers are familiar with the terms debt consolidation, but few banks (if any) provide true debt consolidation loans anymore. Debt management and debt settlement represent almost all debt relief programs today.

 

Debt Settlement FAQ: Can my creditors take me to court?

Answer: Yes, creditors can take you to court. Although this situation is extremely rare, the best way to reduce the risk of creditors seeking legal action against you is to make certain your payments are made consistently to your debt settlement program. Negotiators will immediately prioritize any debt in which action is threatened. Good communication with the debt settlement service provider is always strongly advised. Our team communicates with you regularly and we work hard to ensure you are supported every step of the way. This situation is extremely uncommon.

 

Debt Settlement FAQ: How do I know my creditors will work with a debt company?

Answer: Debt settlement service providers do not allow certain types of debt to be included in the program. You will know which debts can be included before entering a debt relief program.

 

Debt Settlement FAQ: Why can’t I negotiate my own debts?

Answer: You can! You can also sell your own house, repair your own car engine or fix your own plumbing. Most people are experts at something, but not everything. Debt settlement service providers are experts in negotiation, specifically debt negotiation. They know the credit and collections industry very well: debt cycles, internal policies and procedures, and the federal and local laws applying to all parties in the credit industry. Keep in mind the credit industry is also an expert at making people pay the maximum amount of money possible. Simply put, the tactics used by creditors will not discourage the debt settlement service provider.

Creditors know debt settlement providers are experts and typically start at a much lower negotiating point than they would with a consumer in debt. Even though there is a service fee charged, the end cost to you is lower than you could likely negotiate yourself. Moreover, some creditors will not negotiate with a consumer whatsoever.

 

Debt Settlement FAQ: Will I be able to get credit cards, a loan or a mortgage in the future?

Answer: At the conclusion of a debt settlement program, you should have what many creditors find most important: the ability to repay a loan. A debt settlement program is the first step in a process of restoring your finances. If you are deeply in debt and your payments are overdue, you may be on the road to bankruptcy. If bankruptcy is declared, you risk losing your current property and the ability to get a mortgage for several years.

 

Debt Settlement FAQ: Will credit card late charges and interest stop accruing?

Answer: Yes. Late fees and interest can accrue on an account during the time period before the account is settled. All debt settlements will include any new charges from creditors during the program. In some instances, collection agencies have already added a fixed amount to the debt.

 

Debt Settlement FAQ: Do I have to include all of my creditors into the program for Settlement?

Answer: Not all debt settlement companies require all debts be included. However, any accounts included in the settlement must be closed immediately. Creditors will not settle accounts that are still open. You should keep one credit card open for emergency use only.