People deal with their debt in different ways depending on how much of it they have, their income stream, what kind of debt they’re carrying and other factors.
Consumers with more than $10,000 in unsecured debt, like medical bills and credit card delinquencies, may be considering trying debt settlement as an alternative to bankruptcy.
Before you enroll in any type of debt relief program, it’s important to learn everything you can about what it entails.
This will help you set realistic expectations and stay ahead of the curve.
Keep reading to learn more about what you can expect from the debt settlement process.
Speak with a Consultant
First, you’ll need to make sure you’re eligible for settlement – and that it’s the right path for you. Reputable programs will have you speak with a consultant first before even letting you enroll. This presents a good opportunity to ask questions and get a feel for what to expect.
According to the Federal Trade Commission, debt relief companies must disclose the following information up front:
- Price, terms and conditions on its services,
- How long it will take to see results,
- What percentage of each debt you must save before negotiations can begin,
- The possible negative consequences of ceasing payments to your creditors,
- That your funds are yours to control and withdraw.
If you’re unsure of anything, this is the point at which to clear it up. If, after weighing the pros and cons, you feel debt settlement is your best path forward, then you’ll proceed to the next step.
Make Deposits into a Special Account
Debt settlement hinges on successfully negotiating with creditors so they’ll accept a percentage of the original balance – a better alternative for them than receiving nothing if you default on what you owe. But your half of the bargain entails paying the agreed-upon settlement in a timely manner. So, you’ll need to have that money ready to pay out when negotiations commence.
Debt settlement programs will require you to make consistent monthly payments into a dedicated account you control. The exact amount of these deposits will depend on your customized program. Be aware: If you fall behind payments or start to miss them completely, you may have to drop out of the program. The opportunity to settle debts hinges on making these payments until you’ve amassed a certain percentage of your balances – which can take months or years.
You should be able to monitor your progress through a special dashboard.
Negotiations with Creditors
Once you’ve saved up a certain amount, negotiators will reach out to your creditors and attempt to settle your debts. Creditors are not required to accept a settlement, but many will do so in the interest of receiving at least a partial payment on outstanding balances.
Reading through Freedom Debt Relief reviews, you’ll notice consumers have different outcomes; that’s simply the nature of settlement. For instance, one consumer wrote that he was able to pay a total of $18,486 on what began as $30,000 in debt spread across four credit cards.
Pay a Percentage of Each Debt Settled
After you authorize a settlement, creditors should report to credit ratings bureaus that the accounts have been settled or paid. You’ll also have to pay a fee to the settlement program – these often fall between 15 and 25 percent but can vary by situation and state.
Rebuild Credit Score
After settling your debt, it’s up to you to rebuild your credit. Any late or missed payments will have negatively affected your score. The good news is that without growing interest and outstanding accounts, you have the opportunity to manage your personal finances in a way that will grow your credit score. It’s important to avoid racking up new debt and to lower your credit utilization, also known as the percentage of available credit you’re using at any given time.
This is the basic process you can expect from debt settlement. Knowing what to expect will help you maximize your chances of success. Good luck!