Debt Settlement is often confused with debt management or CCCS. Debt settlement is the process of negotiating with the collection agencies who are handling your charged off debt, or debt that has gone to collections. You would use this process to get out of debt if you didn’t want to file bankruptcy and you had stopped paying your creditors. You can either do this process yourself or hire a professional company to do it for you.
What Is The Process Of Debt Settlement?
In general, when you stop paying your credit cards and you miss 3 payments or more your account gets turned over to a collection agency or your creditor’s in house collections department.
The process of debt settlement takes somewhere between 2-4 years depending on what you can afford to pay, how much you owe, and for how much the collectors will settle your accounts.
In a debt settlement program you make payments into a bank account that the debt settlement company has access to. They take a fee out of the money you pay them for your creditors to pay their staff for working on your behalf. As you make payments to the into your settlement account, the settlement company begins paying off your collection accounts one by one. The debt settlement company handle negotiating with your collectors to settle for some reduced discounted amount. Typically this is around half of what you originally owed.
Get Your Credit Accounts Marked As Paid Not Settled
As part of the negotiation process, you really want to make sure that the debt settlement company makes sure that when an account is settled that your credit report gets marked as "paid in full" rather than “settled.” This is an extremely important step. Your credit scores could suffer even worse than they were before the collection account was paid. A "paid in full" notation on your account does not hurt your credit score while a "settled" notation does hurt your score. Eventually, your scores will rebound, but failure to get your account marked like this will extend the time that it takes for your credit scores to rebound once your bad debts are gone.
Two Characteristics Of A Bad Debt Settlement Company
- Guarantees. 100% guarantees in the areas of debt settlement, debt negotiation, CCCS are bad news. No one can guarantee that you'll never receive another phone call from a creditor, that you credit scores will change up or down, be able to avoid bankruptcy, legal advice unless the debt settlement company uses attorneys.
- A debt settlement company that suggests or recommends that you stop paying your debt. If you are paying your debt there are other ways to manage your debt like CCCS. You should only enter into a debt settlement program with any company if you have credit accounts in collections or charged off status. A reputable debt settlement company will not work with you if you are still making payments on your credit cards.
In terms of selecting a debt settlement company to work with you may want to look for a company that is a member of a trade assocation that pays attention to debt settlement like The Association of Settlement Companies. Although membership to this association does not prevent companies from shady operations, the association closely monitors the operations of its members and holds them to a strict set of standards and bylaws.
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