How Does Debt Settlement Work?

When faced with too much debt, just making the required minimum payments may not be possible. Debt Settlement may be your best option. Just how does Debt Settlement work?

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Let's say you are faced with several thousands of dollars of unsecured debt such as:

Credit Cards
Store Charge Cards
Medical Bills
Personal Loan
Repossession Balance
Private Student Loan

...and, because of one or more circumstances like:

Unemployment, illness or accident, divorce, death of spouse or partner, your income has been reduced and you just cannot meet your obligations.

NOW WHAT?

Most people in these circumstances do not have any additional funds to offer and may or may not qualify for a debt management or credit counseling program.

In my opinion, bankurptcy should only be considered after exploring DEBT SETTLEMENT!

SO, HOW DOES DEBT SETTLEMENT WORK?

First, you need to know what you can afford to pay into a Debt Settlement Program. you will want to complete an honest (no use trying to fake it now!) by completing a Budget Worksheet. Once you know if and how much money you can contribute to a Debt Management Program, you will be making regular (ususally monthly) deposits into a Reserve Account established with an FDIC insured banking institution. As these funds grow, they will be used as negotiations and settlements are ongoing for your debts.

Most people who choose a Debt Management Program have missed several payments or are about to. When this happens, the creditor will most likely send out a letter reminding you that you missed a payment, or if your account is really delinquent, they may start calling.

Debt Collectors can be very annoying, calling several times a day and they may be guilty of violating the Fair Debt Collection Practices Act (FDCPA). Yes, you can put a stop to these calls, but you need to be aware that as long as your account is still with the original creditor (Visa, Master Card, etc.) and has not be transferred to a debt collection agency, the original creditor does have the right to call you.

But, once that account is charged off, sold, or assigned to a debt collector, you can put a stop to those calls!

You will need to mail a letter to the debt collector (you most likely have the address as they will now start sending letters) to tell them to stop calling. Here is a sample letter you can use:

If a debt collector continues to call after you have mailed the request to stop, you can file a complaint with your state's attorney general's office or the Federal Trade Commission.

As your reserve account is growing, negotiations are being made with debt collectors to settle the debt. Depending on your particular circumstances, settlements are generally for 50% or so of the current balance.

Once an agreement has been reached between the Debt Settlement Company and the Debt Collector, a Settlement Agreement is faxed or mailed.

Sometimes the settlement is for a lump sum and sometimes the settlement will be paid over several months. Click on the button below to view some actual settlement agreements:

Once the settlement agreement has been completed, a letter or statement should be mailed or faxed. You will want to keep this for your files in case this particular account is not being reported correctly on your Credit Report.