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What is Debt Settlement?

Debt settlement is a privately-run debt relief program that negotiates consumer credit card debts with the creditor or collection agency. Under the program, debt negotiators attempt to get the creditors to agree to reduce the consumer’s balances to more or less half of the original amount – payable by a lump sum amount and that payment is to be considered as the full payment.

How does a settlement start?

1.The consumer who is in serious credit card trouble usually contacts the debt settlement company for initial assessment. Legitimate debt settlement companies don’t usually approach the consumer to offer their services. More often than not, in this internet age, consumers chance upon a debt relief website or see an ad in passing, they could also be deliberately looking for one and had landed on a website – then called the company or somebody they know recommended one.

What can be expected upon the first contact with the settlement company?

The consumer’s debt or financial situation is going to be assessed to know if it qualifies for the program. If the consumer has a total of $10,000 or more of credit card debt plus past due accounts or accounts that are nearing past due, they qualify for the debt negotiation program.

**What are the reasons for those 2 qualifications?

-Creditors would see no point in agreeing to cut down the total balance to more or less half, if the balance is already low – and then also current. Meaning, the consumer can somehow still pay, but are just having a hard time managing payments. If that’s true, then the creditors would prefer that the consumer undergo a hardship program. It’s a program that helps consumer get back on track or remain current with their payments. A creditor hardship program is much like credit counseling companies Debt Management Plan. In a Debt Management Plan, the interest rates on the consumer’s accounts are altered, so as to be able to pay down the principal amount directly, rather than just the interest rates and fees that have piled over the original amount of debt.

-When the consumer’s account is still with the original creditor, the chances of a favorable debt settlement are slim, because they are known to settle for 75% of the balance, only. So, what the debt settlement company asks of the consumer is to stop all payments until the accounts charge off. **Charge off period is sometime after the 5th and 6th month of continuous nonpayment.

2.The debt consultant/negotiator assesses the consumer’s balance and then together with the consumer determine the amount that the consumer can afford to pay monthly and then they draw up a payment plan.

3.The debt settlement company sets up a savings account with a third-party payment processing company or asks the consumer to save up on the target amount on their own savings account.

4.The moment the desired amount is reached, the debt negotiator then contacts the creditors to start the bargaining.

5.When the negotiator reached an agreement with the creditor, money is automatically debited from the consumer’s account straight to the creditors. It’s a bank to bank transaction that happens only upon the consumer’s go signal.

5.After the payment, the consumer should receive a settlement (confirmation) letter from the creditors and also a legal paper that releases the consumer from any more payment obligations to the creditors.**debt settlement is usually a multiple debt transaction- with one creditor after another, but with almost always the same payment processor. The settlement process then from the first creditor to the next is the same – in which the consumer makes regular deposits to their savings account or third party money handler and then the debt settlement company negotiates with the creditor or collection agency. This cycles continues until all debts are satisfied.