Debt settlement Frequently Asked Questions - Top FAQs

Q: Can debt settlement be done without affecting your credit score?

A: While all debt actions can impact credit scores, negotiating an account status as "paid in full" with your creditors can minimize adverse effects.

The effect of a debt settlement may be minimal if you are settling modest accounts, mainly if you are current on other, larger loans.

Q: How do you qualify for a debt settlement program?

A: Eligibility typically depends on the amount and type of unsecured debt. Discussing your financial situation with our counselors can provide clarity. At the end of the free counseling session, we will let you know if you qualify for the program and, if not, what other options you may consider.

Q: Can you settle credit card debt through debt settlement?

A: Yes.

Q: Is it possible to settle student loans?

A: Only private student loans can be settled.

Q: Can you settle payday loans?

A: Yes.

Q: Can you settle medical bills?

A: Yes.

Q: What is the average debt settlement fee?

A: Fees vary, but debt settlement companies generally charge between 15% and 40% of the settled debt.

Q: How can I rebuild my credit after a debt settlement?

A: Regularly monitor your credit report, ensure all settled debts are accurately reported, maintain current accounts in good standing, consider secured credit cards, and keep low balances on existing cards.

Q: How long does recovery from debt settlement take?

A: Credit score improvement can range from 6 months to 2 years, depending on individual financial behaviors post-settlement.

Q: What are the differences between secured and unsecured debt?

A: Secured debts are tied to collateral like homes or cars, while assets don't back unsecured debts. The creditor may seize the collateral if you default on a secured debt.

Q: What is debt settlement, and how does it work?

A: Debt settlement is a strategy where one negotiates with creditors to pay a reduced amount of what's owed. Typically, this involves persuading creditors to accept a lump sum that's less than the total debt.

Q: What are the risks of debt settlement?

A: Debt settlement comes with potential pitfalls:

  • Successful negotiation isn't guaranteed.
  • Creditors might take legal action for non-payment.
  • Forgiven debt could be taxable.
  • Credit scores can be adversely affected.

Q: Which debts qualify for debt settlement?

A: While most unsecured debts, such as credit card balances, medical bills, and payday loans, can be negotiated, secured debts like mortgages or car loans aren't typically included.

Q: How do debt settlement and debt consolidation differ?

A: While debt settlement focuses on reducing the total debt through negotiation, debt consolidation combines multiple debts into one loan, usually at a lower interest rate.

Q: How do you identify a reputable debt settlement company?

  • Research company ratings and complaints with the Better Business Bureau.
  • Verify the company's registration and licensing in your state.
  • Thoroughly understand any contract before signing.

Q: Can I negotiate a debt settlement on my own?

A: Yes, you can. However, professional guidance might help if you're unfamiliar or uncomfortable with the negotiation process.

Q: What if a creditor won't negotiate?

A: If a creditor is unwilling to negotiate, you might need to explore other options, including making payments, negotiating with other creditors, or considering bankruptcy.

Q: How does debt settlement impact my credit score?

A: Your credit score might initially drop when you stop making payments and begin the settlement process. However, as settled debts are reported as "settled" or "paid," your score should gradually improve. However, settling current, non-delinquent accounts can have a more significant negative impact.

Q: Do I need to be behind on payments to use a debt settlement program?

A: Our program caters to current and delinquent account holders.

Q: Does debt settlement work with all creditors?

A: While we aim to negotiate all unsecured debts, settlements aren't guaranteed. Secured debts, student loans, and certain government-imposed debts like taxes or child support are typically off the table.

Q: What can I expect from your debt settlement program?

A: Successful negotiations can lead to a reduction in debt, typically ranging from 40% to 50% of the original amount. If you get lucky, you could even save 80% of the debt amount.

Q: Will my entire debt be erased upon program completion?

A: While the goal is to eliminate all enrolled unsecured debt, you'll still be accountable for secured and unsecured debts not included in our program.

Q: How do you choose between bankruptcy and debt settlement?

A: Both options have implications. Analyzing your financial situation, potential recovery time, and long-term goals can guide your decision. Tools, like our budgeting tool, can help.

Q: Duration of a debt settlement program?

A: Typically, our programs span between 15 and 36 months, but individual timelines vary based on several factors.

Q: Will interest still accrue on my debts?

A: Yes, but our experienced negotiators often work to eliminate or reduce these charges during the settlement process.

Q: Tax implications of debt settlement?

A: Forgiven debt amounts might be considered taxable income. While creditors report these to the IRS, under specific insolvency criteria, you might be exempted. Consult with a tax professional to understand your obligations.

Q: How can I find a debt settlement attorney near me?

A: Use online searches, seek personal recommendations, contact local bar associations, check online legal directories, review ratings, interview potential attorneys, verify their licenses, discuss fees, and review the retainer agreement.

Q: What are the pros and cons of debt settlement for someone with $10,000 in credit card debt and a 620 credit score?

A: Pros: Include debt reduction, resolution of unsecured debt, faster relief, and being a bankruptcy alternative.

Cons: Include potential credit score impact, uncertainty of creditor agreement, fees, tax implications, legal risks, and continued creditor contact.

Q: What are the risks of debt settlement for someone with a car loan and mortgage?

A: Risks include lowered credit scores, IRS bills, challenges obtaining future mortgages, and specific conditions regarding auto loan settlements.

Q: What fees are associated with settling a $20,000 credit card debt with a 580 credit score?

A: Fees can include service fees, settlement fees, cancellation fees, legal fees, and maintenance fees. Reviewing the specific fee structure of any company or attorney you consider is essential.

Q: How long does settling $15,000 in credit card debt take?

A: Typically, it takes 2 to 4 years but varies based on individual circumstances.

Q: What are the chances of debt settlement success for someone with $5,000 in credit card debt and a 700 credit score?

A: Success depends on factors like the amount of debt, negotiation skills, financial hardships, and creditor willingness. A 700 credit score might be advantageous during negotiations.

Q: Can settled debts reappear on my credit report?

A: Typically, once a debt is settled and reported as such, it shouldn't reappear as an outstanding debt. However, you can dispute it with the credit bureau if it does.

Q: Is debt settlement better than bankruptcy?

A: Both have their advantages and consequences. While debt settlement might have a shorter-term negative effect on your credit score, bankruptcy can remain on your credit report for up to 10 years. The best choice depends on the individual financial situation.

Q: How do I know if a debt settlement company is legitimate?

A: Research the company online, check for reviews, ensure they have no unresolved complaints with the Better Business Bureau, and verify they comply with the Federal Trade Commission’s regulations.

Q: Will I be taxed on my settled debt?

A: In some cases, yes. The IRS may view forgiven debt above $600 as taxable income, and you could receive a 1099-C form.

Q: Can I negotiate a debt settlement on my own?

A: Yes, you can negotiate directly with your creditors. Some people choose to do this to avoid agency fees, but it can be time-consuming and requires a good understanding of negotiation tactics.

Q: When can I apply for new credit or a loan after a debt settlement?

A: You can apply immediately after settling debt, but approval odds and interest rates might be unfavorable. It's often recommended to wait and rebuild your credit score first.

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