Frequently Asked Questions
Q: What is Debt Settlement?
A: Debt settlement or debt negotiation is the process of negotiating with creditors to reduce the amount of outstanding debt. It is not unusual to see savings of 50% or more when settling with a creditor or collection agency. This is typically achieved by clients saving up the necessary amounts on their own or in a trust account (also known as custodial accounts or special purpose accounts) so they can settle accounts in the lump sums creditors want when significant discounts are offered.
Debt settlement is not recommended if you are current on your accounts. Doing so would have a significant negative effect on your credit. If your accounts have already been charged-off or are in collections, debt settlement can save you a significant amount of money.
Only unsecured debts (i.e. credit cards, medical bills, personal loans) can be settled. Secured loans are collateralized by a lien on specific assets. The incentive for a creditor to accept less than owed when they have the option of repossessing a vehicle or foreclosing on a home is non-existent, so debt settlement is not an option before the asset has been returned to the creditor.
Clients can still be sued by creditors while in a debt settlement program. However, you are just as likely if not more likely to be sued if you do nothing. Being in a program will let the creditor know you are taking care of your debt as quickly as you can which is often perceived positively, versus what has been done up to that point to resolve debt.
Q: What if I My Accounts Are Still Open?
A: Credit counseling is designed for consumers that make their credit card payments late or their cards are maxed out or over the limit and in some cases are only making the minimum payments. These clients are often caught in a perpetual cycle with no way out. By just making the minimum payments, interest and fees are adding up faster than the clients’ ability to pay down the balances. Many people in need of credit counseling are often late on mortgages, car and utility payments and in some instances they skip one payment in order to make another. See "Settlement Alternatives" for more options.
Q: Are There Other Options?
A: Yes. Credit counseling, debt consolidation loans (if you qualify or have equity in your home) and bankruptcy are all options you may consider. Each has its pros and cons. Examine each prior to deciding what is best for you. See "Settlement Alternatives" for more options.
Q: How will Debt Settlement Affect My Credit Score?
A: If you are current and opt to begin the process of settling your debts the impact on your score can be significant. We do not encourage you to use debt settlement on open, current accounts. Consider consumer credit counseling, debt consolidation loans or consult a bankruptcy attorney in your area.
If your accounts have already been charged off or you are in collections, debt settlement will not cause further damage to your credit.
Q: What is Unsecured Debt?
A: Unsecured debt refers to any type of debt that is not collateralized by a lien on specific assets of the borrower. Mortgages and car loans are secured by the property or vehicle. The most common types of unsecured debt are credit cards, medical bills and personal loans. Unsecured debt is negotiable because there is nothing being held as collateral for unpaid balances. Interest and penalties typically accrue for unpaid balances.