Debt Settlement - Watch video on how to pay your debt faster (BBB Member)
If you're knee deep in debt, cannot pay your bills and wish to avoid collection calls, you may consider debt settlement (also known as debt negotiation). This is when you negotiate and reduce the outstanding debt by 40-60% of the amount you owe. The creditor forgives the remaining debt thereby helping you to get out of debt faster.
- Lower your monthly payments
- Reduce interest rates
- Waive late fees
- Eliminate collection calls
- Avoid bankruptcy
- Have only one monthly payment
- Become debt free
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How settlement (or credit card debt settlement) works
Debt settlement companies offer a settlement program wherein they negotiate with your creditors/CA in order to settle the debt for less than what you owe. The companies charge an upfront fee for their services. Given below is an example of how debt settlement or credit card debt settlement works.
How credit card debt settlement works - An example
Let's say Jesse owes a total debt of $100,000 on 5 credit cards. She is finding it difficult to keep up with the minimum payments. She has earlier consulted a credit counseling agency but the monthly payments they negotiated with her creditors were too high for her to pay. Jesse doesn't want to file bankruptcy as she does not want to involve the court. So, finally Jesse ends up working with a credit card debt settlement company XYZ. Here are the 4 steps on how Jesse could settle credit cards and pay off her dues.
- Stop payment to creditors: The representative at the credit card debt settlement company asks Jesse to stop paying her creditors and deposit a certain amount monthly into a savings account (i.e. a trust account that XYZ creates for Jesse).
- No more handling of collection calls: While Jesse starts falling behind on her payments, she may receive collection calls, which are effectively handled by the representative. Jesse doesn't have to handle such harassing calls on her own.
- Negotiation starts soon after: As Jesse accumulates good amount of dollars into the trust account, the representative at the credit card debt settlement company starts negotiating with her creditors one by one.
- Debt is reduced by 40-60%: Finding that Jesse won't be able to pay enough, her creditors agree to accept a reduced amount, say around 40-60% of her outstanding bills.
While Jess pays off one debt, she waits for better offers from other creditors. She makes sure that any extra money coming in would be used to pay off her bills. Finally, after a period of 2 years, Jesse is able to settle credit cards debt with all her creditors.
Whether it's a credit card debt settlement program or one which includes other dues, you should stop paying your creditors initially. Instead, send in those payments to the debt settlement company. Otherwise, you cannot gather enough funds to settle credit cards dues and other bills.
Once you have enough funds deposited into the trust account, online debt settlement companies (or credit card debt settlement companies) negotiate with your creditors/CA and attempt to stop all collection efforts. Find out the details on how to negotiate credit card settlement (or debt settlement on other bills) from the 6 steps in debt negotiation program.
Debts you can settle
Credit card debt settlement is quite common. Other than unsecured credit cards, medical bills, gas/store cards, personal loans etc can also be settled. But tax debts, alimony, child support, mortgages, car loans and federally insured student loans are excluded from a debt settlement program.
How much to pay for settlement
Debt settlement companies charge 25-35% of the debt balance that is forgiven under the program. The fees are based on:
- How much you owe in total
- Number of debt accounts you have
- How much you'll save by settlement
How long it takes to settle debts
It usually takes 2-4 years to complete a credit card settlement program or settle personal loans, medical bills and other dues. The period of completion depends upon your total debt amount.
Creditors may not sue after settlement
Once you negotiate debt settlements with your creditors/CAs, they may not come after you for the balance. It is illegal in many states such as Arkansas, Texas, Georgia, Michigan, Washington etc. However, in other states such as Alabama, Delaware etc, the creditor retains his right to sue you under certain conditions.
How to choose best debt settlement companies
In order to find out the best debt settlement usa companies, you need to check out the following details:
- Company profile: You need to check the profile and service background of debt settlement companies and then choose the one that suits you.
- Company accreditations: These include the certifications that the debt settlement companies have obtained so far. For instance, you may check their BBB reports and find out what they say about debt settlement online (or credit card settlement) companies. There are other accreditations such as being a member of the TASC, IAPDA certification etc.
- Program fees and costs: You need to find out what fees are charged by debt settlement companies. Compare the fees and then choose the best debt settlement usa companies you can deal with.
- Client testimonials: Look out for testimonials and feedback given by debtors on the services of the debt settlement usa companies. You can also ask your friends and associates about reputable debt settlement companies they have dealt with.
Pros and cons of debt settlement (or credit card debt settlement)
Whether you go for credit card debt settlement program or settlement on personal loans, payday loans etc, here are the pros and cons that you should be aware of.
Pros:
- Avoid bankruptcy: With debt settlements, you can reduce your debt burden and pay off bills comfortably. You can negotiate with the creditors or collection agency (CA) and settle your debts for as much as you can afford to pay. Thus, you don't need to file Chapter 7 bankruptcy. There are chances of losing your home or car in bankruptcy wherein your assets are sold off to pay your creditors.
- Single payment: Instead of paying multiple bills each month, you'll have to make a single monthly payment to the debt settlement company. The monthly payments are accumulated in a trust account in order to be paid off to your creditors/CA after negotiation. So, you can avoid the stress of paying debts at different rates and dealing with several creditors at a time.
- Avoid unfair collection practices: You can avoid unfair collection practices and harassment by debt collectors if you negotiate a debt settlement.
- Eliminate extra charges: The settlement company can try and eliminate late payment fees, if any. Any over-the-limit fees on credit cards can also be minimized or eliminated through debt settlements.
- Avoid lawsuit & other legal actions: Creditors or the CA can file a lawsuit, get a judgment order and garnish your wages or place lien on your property. You may be able to avoid such legal actions if you're in a debt settlement program.
Cons:
- Credit score drops: In a debt settlement program, you're asked to stop paying your creditors till you gather funds for making a lump sum payment to settle your dues. Moreover, you may settle your bills only after your accounts are charged off. Due to late payment or charge-offs, your credit score takes a hit.
- You may owe taxes: Once you go for credit card settlement or settle other debts, creditors will forgive a percentage of what you owe. As such, the IRS will require you to pay taxes on this forgiven debt which is known as cancellation-of-debt (COD) income.
- Account status on credit report: Unless negotiated with creditors or CA, the account status on your credit report will be updated as "Settled" which creates a negative impact on your score as compared to a "Paid in full" status.
Debt settlement program provides an easy way out of debt. However, your credit score is likely to go down when you stop paying creditors and save money for debt settlement (or credit card debt settlement). But you can repair your score by using a secured credit card, or a gas/store card. Such cards are easily available even if you have a poor credit history. Besides, you need to pay off other bills on time while you settle credit cards and other dues using debt settlement services.
Just in case you don't want to take help from online debt settlement usa companies, you can go for do it yourself debt settlement. Use sample letters in order to communicate with creditors/CA. Just make sure you understand how the process works and negotiate in the best possible way.
Related Forum Discussions
- BBB ratings assigned to debt settlement companies
- Are there any legitimate debt settlement companies out there?
- Pros and cons of filing bankruptcy or choosing debt settlement
- Is it necessary for debt settlement companies to have attorneys?
- Does anyone have experience with Allegro law debt settlement?
- Has anyone ever heard of or used Rise Above Debt Relief?
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#1
01-13-2007, 04:39 PM
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Debt Settlement - Watch video on how to pay your debt faster (BBB Member)
I need to know if it is better to pay a charged off account in full at a reduced price or if I should pay the full amount or go for credit card debt settlement....and if I pay the full amount owed, would it look better on my credit report?
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#2
01-13-2007, 05:12 PM
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mshayna -
Welcome to the site! I am not a credit expert, but I do know that when I have settled bills in the past with the help of debt settlement online companies, it showed up on my credit report as "settled for less than amount owed", rather than "paid in full" or "paid as agreed". I don't know how that reflects on your report in terms of your credit score, but I'm sure others here will post their take on your situation. You'll have much more information by tomorrow evening if you keep watching this thread. 
__________________
A journey of a thousand miles begins with a single step...and becoming debt free is a journey!
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#3
01-16-2007, 02:17 AM
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do it yourself instead of taking help of debt settlement services
you have the ball in your court right now, call your creditor or the collection agency and try to negotiate payment for deletion. First I would negotiate a reduced "paid in full" amount minus all their bogus fees, then explain to them that you agree to pay this amount as soon as you get a letter from them agreeing to remove it totally from your credit report. A chargeoff is one of the worst things to have on your credit report. These people want their money, it doesn't matter to them what is on your report. With a little negotiation, and the promise of a payment from you they are usually more than willing to do this. But whatever you do do not pay them until you get this agreement in writing. Once you do all this you must follow up with the Credit Bureaus to ensure this has been removed.
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#4
01-16-2007, 05:06 AM
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Junior Member
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debt settlement pros and cons
I'm not here to tell anyone not to pay their bills or anything like that but another thing to take into consideration is how long it been charged off.If it is a recent charged off account then its probabaly gonna be on your report for about another 6 1/2 yrs.If it is due to be off your report soon and the SOL has run out then personally i would just leave it alone.Also when you go for debt settlement solutions and pay less than what you owe, sometimes the collector/creditors will send you a 1099 and you have to claim the reduced amount as income on your taxes.Just like candice said if you have themoney to settle and they are willing to do so,make sure that you have it all in writing before sending any money.And keep the letter and all documentation incase you need it later.Sometimes ,maybe even years later another collector will come along and try to get the additional amount,and then you'll have the proof that it was settled.
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#5
01-18-2007, 03:57 AM
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I had no idea you could get a 1099 for unpaid bills. I'm with ya taksmom476. If all you have to do is wait it out, do so. Use your money to pay on newer items on CR, or pay on current bills so they dont end up on CR. Certainly dont risk court by not paying, but weigh the benefits of paying against the benefits of putting the money away.
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#6
01-18-2007, 05:04 AM
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credit card settlement may affect your credit
Not paying your bill, when its about to fall off in a year is still risky. You still risk the chance of having to pay the full price the collection agency is attempting to collect, plus any interest or court fees that have been attached if it gets taken to court.
Remember though, if it does get taken to court, and the judge finds in favor of them, you'll only get 25% of each check garnished. Failure to pay could result in jail time. After you have asked for validation, and received it, you can start working with your creditor. If you had a $500 credit limit credit card, and they're attempting to collect $1200 on it because of late fees, offer $700. If not, then send a cease & desist letter, and wait for their offer. You can either ignore it, and RISK that chance in court, or accept their offer. There's really no...."which is better". It's your credit that's going to be affected when you seek credit card debt settlement help; so make your decisions wisely. Regards Mike
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#7
01-18-2007, 06:10 AM
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I was in no way telling them not to pay his bill. Especially if there is a year or more until the sol runs out.I'm talking if they only have a month or 2 until it runs out.If they are already past the sol and its due to be off their report soon then all I was saying pay the ones that are still well within the sol and that are going to be on their report for a good bit longer.
For example: You have 5 charged off cc on your report...2 are much older and past the sol, and due to be off you report in 6 months...3 are farely new,still well within the sol,and not due to be removed for another 6 years. I would pay the newer ones,because there is amuch better chance of being sued over those ones.And those will also be on your report much longer and in the long run will look better if you pay those. By making a payment on the ones past the sol.it will bring them back within the statutes.Bringing up the possibility of lawsuits on those as well..So if they would for some reason stop paying on those again there is now the possibility of 5 lawsuits instead of 3. Then for moral reasons or whatever they can then pay the ones that were past the sol. I am sorry sorry if it was construed that way.
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#8
01-18-2007, 06:28 AM
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Quote:
If something is about to fall off your credit report, making a payment would renew the SOL.
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#9
01-18-2007, 06:42 AM
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Posts: 80
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I just didn't want people to think I'm her as an advocate to not paying your bills thats all.I know you didnt mean anything by it.Believe me I know the good feeling a person can have when they can and do pay all their bills on time.
And as you said every avenue can have a stump in the road.Thats why I try to weigh out all my options first.
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#12
01-27-2010, 08:08 PM
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Quote:
CC companies charge you exorbinate interest rates plus late fees plus overlimit fees that get compounded month after month. I don't mind paying what I owe but when I tell them I can't pay and they triple my interest rate and tack on all those fees, then I wait for them to charge it off and then settle for about half of what I "owe." This way, you pay what you really owe without paying all those bogus fees and high interest rates. Your credit rating is probably underground anyway for not paying so negotiate a debt settlement with each one.
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#15
02-04-2010, 08:43 PM
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Is credit card debt settlement legal?
Is it legal to settle and reduce the balance on my cards? What law says that is it legal in ilinois? How the reduce affect my credit score? and how I ll see it on my score in
Last edited by Shazzers; 02-05-2010 at 06:28 AM.
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#16
02-09-2010, 03:48 PM
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I have alot of questions i owe actually 18850.00 on a credit card with late fees it has come to 22316.81. They have turned this over to a law office. My husband was laid off but the card was in my name. I am trying to get this company to let me pay 40% of the 18850.00 but they are not hearing it. I am afraid they are going to take me to court and garnish my wages .what are my options here? Should i get legal asst. or seek help from a credit card debt settlement company?
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