Frequently asked Questions about Debt Settlement

Q: What exactly is Debt Settlement?

A: Debt Settlement is the process of reducing or eliminating the amount of debt (interest and/or principle money) owed to a creditor. The amount settled upon usually varies depending upon the negotiations between each individual creditor and debtor.

Q: Who qualifies for debt settlement programs?

A: Usually individuals who are in extreme financial trouble (hardship); frequently late on payments and facing possible bankruptcy. They are unable to pay their bills, or they have very little means with which to do so.

Q: Who does not qualify?

A: Anyone who has means to pay off their debts does not qualify and should just use their resources for that purpose. Debt settlement programs are not meant for individuals who have fairly high credit ratings and are well capable of paying their debts. Similar individuals who want help would be better off seeking a budget counselor.

Q: What is the difference between debt settlement and bankruptcy?

A: A debt repayment program is designed to help people prevent default or bankruptcy. One of the main objectives of dept settlement counselors is to negotiate legally with creditors and agencies. This action will, in most cases, help decrease the amount of money owed, thus making the debt more affordable for the debtor. However, you must keep in mind that just becuase you settle your debt does not mean that you will not file for bankruptcy at a later time.

Q: Could bankruptcy be a better option for me?

A: Every situation is different and debt settlement is not right for everyone. If you are unsure, it is best to consult with a bankruptcy attorney in your state. Clearly lay out your situation and seek advice. All bankruptcy lawyers are familiar with the concept of debt settlement and can help you choose between the two options.

Q: Does Debt Settlement affect my credit?

A: Yes it does. When you enter the Debt Settlement program, your credit score will be negatively impacted. The magnitude by which your credit scores decline depends on your particular set of circumstances and the number of accounts you settle. Creditors are required to notify credit bureaus for all accounts that have been settled.

Q: Can I still use my credit cards?

A: No, not the ones that you have settled your debt on. All credit cards in the program will be inactive and you will use your privileges to use them. Obviously, as you know, the whole point of this program is to get you out of debt, not add to it.

Q: Is there absolute assurance that all debts will be settled?

A: In most cases, all debts and obligations can be settled. This requires careful and skillful negotiation by a professional. However, not all debts can always be settled. In either case, the program can make a significant difference in the amount of debt owed.

Q: Can I settle my debts without the help of a professional?

It is certainly possible to settle a debt without professional aid; however, this is a long and drawn out process that can prove highly frustrating. Not to mention generally speaking you are not the best person to negotiate on your own behalf. Therefore, the rather small investment may be a good price to pay for the peace of mind that you attain, knowing that your money problems are being skillfully addressed and handled.

Q: If a debt is settled, should it be reported to the IRS?

A: All cancelled or settled debts totalling more than $600.00 are required to be reported to the IRS. It could affect the amount owed or the amount refunded.

Creditors are always looking for a low-cost way to help people settle their debts. Professional credit counselors and debt management firms are able to use this as leverage while assisting consumers in debt repayment plans. The main goal in all cases is to make both the debt collector and the client happy. Debtors often participate in debt repayment plans to settle their debts much faster than they could on their own.

Repayment plans often include the reduction of debt, which is referred to as debt settlement. This is often a 50% or more decrease in what the debtor owes to the creditor.