Consumer Debt Settlement

Debt settlement can help your debt problems

Your financial situation is different from anyone else. You should take the time to review this consumer debt settlement options guide to find the best solution for your needs and goals.

What Is Debt Settlement?

Consumer Debt Settlement (or debt adjustment) is the process of resolving delinquent unsecured debt for far less than the amount owed by promising the lender a substantial lump sum as full payment.  Debt settlement comes into play only with your unsecured debt like credit cards, medical bills and personal loans.  This debt relief option will help you only if you have a financial hardship and have little likelihood of repaying your creditors.   Your creditors are not going to negotiate and accept less than what you owe if there’s a belief you are able pay the entire debt originally agreed to.

The consumer debt settlement process will hurt your credit score since you will not be making full payment on your unsecured debt accounts.  However you will already have hurt your credit score by being delinquent on these accounts, even before considering this debt relief option. As long as you are aware of the impact and have a plan to recover afterward, debt settlement can be the right solution for you.  Since this process is truly debt reduction,  It offers a fast exit from your unsecured debt and a clean start moving forward with your life.

Do It Yourself Debt Settlement

There are two things to be negotiated with your creditors: how much you can pay and how it will be reported on your credit reports.

You establish beforehand a total budget, over what period of time, that you can afford for debt settlement. Your goal should be to payoff less than 50% of your total unsecured debts in less than 24 months.

Negotiating reductions in your debt balances with your credit card issuers requires education, experience, discipline, consistency, communication skills and time. Not everyone has them.

Also, the number of delinquent credit card accounts should be a factor before you go down this path.

Some basic things for you to consider:

  • You cannot legally obligate your creditors to negotiate or accept a debt settlement.
  • Creditors will be aggressive in their debt recovery process.
  • Your character will be tested in the debt settlement negotiations.
  • Any third-party company debt settlement with your creditors requires your approval.
  • Once you choose this debt relief option, it must be to finish successfully.

Success in credit card debt settlement is: pay off all your unsecured debts, at the lowest total cost, as fast as possible, with the least amount of damage to your credit profile to move forward in your life.

For Profit Debt Settlement

For-profit consumer debt settlement companies are supported by the user fees charged for their services. These fees are based on a commission of the total amount of unsecured debt to be negotiated or the total amount of unsecured debt reduction. The latter commission structure is better for you. You only pay fees when a debt settlement with one of your creditors is completed. Legally there are no upfront fees with a debt settlement company.

If you are struggling with multiple credit card creditors, for-profit debt settlement is probably the better option. Their experience, resources and relationships with credit card issuers will normally result in faster and higher discounted debt settlements. You need to balance these savings with the additional expense of their service fees.

A third-party debt settlement company generally follows the same process as if you negotiated for yourself:

  • An escrow account is established where you make deposits to generate the funds to be used for creditor lump-sum payoffs.
  • A budget is established for monthly payments to be set aside until there is sufficient funds to make creditor settlement offers.
  • Consider all options to sell personal assets to fund the escrow account to speed up the debt settlement process.
  • When sufficient funds are available your creditors will be approached with settlement offers.
  • When a settlement offer is accepted, you approve the final offer and funds are release for a lump-sum payout.
  • This process is repeated with your other creditors until debt settlement agreements are reached.
  • The shorter the debt settlement process, the less cost and damage to your credit profile.

How Does Debt Settlement Work?

Debt settlement is true debt reduction. This debt relief option is where you or a third-party agency negotiate with your lenders to resolve delinquent debt accounts for far less than the amount owed by promising the lender a substantial lump sum as full payment. Debt settlement comes into play only with your unsecured debt like credit cards, medical bills and personal loans. Your credit card accounts need to be already 3-6 months delinquent and you are in a financial hardship where your creditors have little expectation of receiving any payment on their accounts. The risk of receiving no payment is the motivation for negotiating with you as there is always an implicit threat that you might declare bankruptcy.

Do It Yourself Debt Settlement Option

A variety of questions need to be answered before deciding that a DIY debt settlement is right for you:

  • Do you qualify as a financial hardship case to allow negotiating with your creditors?
  • Are your total unsecured debts less than $10,000? If not, you should consider using a third-party debt settlement company.
  • Are your unsecured debts sufficiently delinquent (3-6 months late)? If not, its premature to start debt settlement.
  • Are any of your unsecured debts reaching their statute of limitations? If so, there may be no need to negotiate a settlement.
  • How will you be funding lump-sum payments to your creditors?
  • Do you have the discipline and skills to negotiate with your creditors and collectors?

Once these are answered, prepare yourself to begin the debt settlement process.

You will only be negotiating unsecured debt like your credit cards, personal loans and medical bills.

Prioritize your debt accounts. This may be based on account balance, APR/penalties or delinquency age.

When you have sufficient funds to make a lump-sum payment offer, you can begin debt negotiations.

Your debt settlement offers should be no more than 30% of the outstanding account balance. This allows you accept a counter offer from the lender if there is interest in negotiation. You have a limited budget of 50% of the total delinquent accounts to negotiate with.

Be consistent in your telephone conversations with your creditors. Don’t deviate. Your conversations will be recorded by your creditors and referenced during any future negotiations. Document each creditor conversation: date, creditor contact, points discussed, action items, etc.

Contact your creditors and advise them of your financial hardship and your inability to make payments on the accounts. It must be made clear to the creditor that if your financial situation does not improve you will be considering bankruptcy.

Once you negotiate a settlement agreement with one of your creditors, you must receive it in writing.

After you have completed your lump sum payment to your creditor, verify and receive confirmation in writing.

Thirty days later, review your credit report to ensure that the creditor account has been marked as “account settled”.

For-Profit Debt Settlement Company

A variety of questions need to be answered before deciding that debt settlement is right for you:

  • Do you qualify as a financial hardship case to allow negotiating with your creditors?
  • Are your total unsecured debts $10,000+ to justify the debt settlement company’s service fees? Otherwise you should consider DIY negotiation.
  • Are your unsecured debts sufficiently delinquent? They need to be 3-6 months late.
  • Are any of your unsecured debts reaching their statute of limitations? If so, there may be no need to negotiate a settlement.
  • How will the debt settlement escrow account be funded? Will it be only your monthly income or combined with other sources?

Once these are answered and paperwork completed, the debt settlement process can begin.

The debt settlement counselor will review with you which delinquent credit cards accounts should be included. Small credit card accounts or those already “charged-off” by the credit card issuer will not be included since there is little benefit to negotiate a settlement.

You will need to budget 50% or less of the total unsecured debt for the payoff escrow account. Debt settlement payoffs offers will be no more than 50% of what you owe on any account in the program.

You make no further attempts to pay any unsecured debt in the debt settlement program and only minimum payments for those accounts that you excluded.

Once there is sufficient funds in the payoff escrow account, your debt settlement counselor begins making settlement offers to your creditors.

When a verbal agreement is reached with one of your creditors, it is documented and passed to you for approval. Once approved, funds are released from the payoff escrow account to the creditor. Funds are then released to the debt settlement company for its service fees.

The process then continues with other creditors.

The faster you can fund the payoff escrow account, the faster you can eliminate your unsecured debts.

Considerations

Lower the payoff amounts you need to cancel your unsecured debts.

Reduce the time you need to cancel your unsecured debts.

Avoid the alternative of your filing personal bankruptcy and loss of personal assets.

Help you deal with a financial hardship in your life.

Prevent the damage to your credit history profile.

Intercede in any collection efforts that are in the legal process.

Stop the closing of non-secured credit accounts for up to seven years.

Deal with the the cause of excess credit card debt which is lack of financial discipline.

Most Americans carry an excessive amount of credit card debt. While convenient as a form of payment, it is an expensive type of debt to use and requires financial discipline. Many lack this.

Debt settlement is true debt reduction but at a significant cost to your credit history profile. Your opportunities for future credit from lenders wlll be limited for up to seven years. Additionally your cost of debt financing from a lender will be relatively high. You will be perceived as a credit risk for an extended period of time.

However, this debt relief option does avoid the alternative of filing personal bankruptcy and the resultant loss of your personal assets and other negatives in your personal life.

Any creditor accounts that you settle for less than the full amount that you owe, you could be subject to income taxes. Any principal (excluding interest and penalties) that is not paid back is consider to be canceled debt. This is treated by the IRS as a source of income and is taxable. To avoid paying taxes on this canceled debt you will need to show to the IRS that this occurred during a period of financial hardship using a 1099-C form.

Yes it does. Debt settlement will trash your credit history profile. It is simple to understand. You were unable to honor your commitments to your creditors.

However, since you were already in a financial hardship situation prior to the debt settlement process, your credit history profile was already damaged due to late creditor payments.

Your creditor settled accounts will be designate as “account settled” rather than “account paid” on your credit report. This is a negative account status. As a result, this will restrict your access to new credit as well as raise interest rates for any future type of financing for up to seven years.

However your credit profile will begin to improve, subject to your consistency of account payments.

Finally you need to avoid the biggest mistake people make after eliminating credit card debt. That is, not stopping making new credit card charges.

Your life goes on.

Credit Repair | Identity Theft

Frequently Asked Questions

Debt Relief Services

Debt relief refers to resolving your debt without taking out a new loan. Our financial partner debt relief program is designed to help you save as much money as possible, as quickly as possible, based on the money you have available. It puts you back in the driver’s seat to get you the maximum savings on your debt.

Our financial debt relief partner offers an in-house debt relief program where fees are earned based on results of the program. The way this program works is that money will accumulate on a monthly basis in a special purpose account. Alternatively, you may have a lump sum amount that will accelerate the program. Based on the amount of money accumulated, our financial debt relief partner will negotiate the best possible reductions for your debt. Each account is negotiated and resolved until all of them are settled.

Our debt relief financial partner offers services related to tax problems such as tax liens, wage garnishments, delinquent payroll tax issues, and other tax related issues. In some cases just by getting proper tax returns filed, a significant adjustment in the amount of taxes owed is realized.

Our debt relief financial partner is a member in good standing with the AFCC, the largest and oldest association for debt relief companies. In order to be a member of AFCC, a debt relief company has to comply with a stringent set of requirements and disclosures and maintain these standards in order to keep up with renewals.

As an alternative to bankruptcy, a debt relief strategy is the best and fastest way to get out of debt. However, there are conditions that must be taken into account for the program to work.

The most important factor that determines the success of a debt relief program is the individual’s ability to fulfill their payment obligations on a monthly basis for the duration of the program.

A number of factors influence the cost of entering a debt relief program such as the creditors you owe, your credit balances, your ability to contribute monthly dedicated account payments into the program, the amount that can be negotiated from your balance, how quickly it is negotiated, and the fees charges.

Our debt relief financial partner fees, on average, are 20% of the total debt amount enrolled and are calculated as part of your monthly repayment. There are no upfront fees to be enrolled in our debt relief financial partners’s relief program.

The goal of the debt relief program is to help save you as much money as possible, as fast as possible.

Our focus is to help you save as much money as possible, as soon as possible. Your focus should be on your job or business and family. It’s hard enough having to manage everything going on around you and still have to worry about your debt. Our debt relief financial partner has professional, trained staff to provide you with the best way forward.

While you ensure that you make your payments monthly, which may account for 2% of the effort, our debt relief financial partner is working tirelessly to ensure that the other 98% of the process is in place and managed to help you save money and be debt free as quickly and painlessly as possible.

Loans such as federal student loans, certain credit union accounts, and government loans are not eligible to be included in a debt relief program. Any loan that is secured to a physical item, such as auto or mortgage cannot be included.

Private student loans, that are not government backed, may be included in a debt relief program.

Our debt relief financial partner is licensed and/or bonded in numerous states. Our debt relief financial partner is in full compliance with federal and state laws, as well as meeting any licensing and bonding requirements as needed by each state where it provides services.

Once you are enrolled in a debt relief program, your responsibilities will include keeping up a great line of communication and making payments on a monthly basis into a special purpose account.

Our debt relief financial provider will handle the rest of the process and make sure that you save you as much money as possible, as fast as possible for as long as you are in the program.

Qualified candidates are those who have a legitimate financial hardship, which has caused them to fall behind on their payments to creditors, or will cause them to fall behind in the near future. Our debt relief financial partner only represents consumers who are truly in need of its services and stand to significantly improve their financial situation.

Due to your legitimate financial hardship, you are able to participate in this savings program in order to help pay your debts in the future. We are not here to advise you not to pay your debts now, however if you are able to make payments to your creditors, then you probably don’t actually have a legitimate financial hardship.

According to the US government: ” A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the ‘insolvency’ exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent.”

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Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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