This is the place to get answers to common questions about debt settlement, from negotiating your own settlements, to it’s effect on your credit score, and more.

Here are some common questions and answers regarding the debt settlement process.

If you can’t find your answer, simply use the form below to ask your question.

If you know an answer or would like to comment on an answer, please do!

Will my credit get trashed? How long will these marks stay on my credit?

Since you will be delinquent on your payments, and you are settling with your creditors at a reduced amount, your credit will be adversely affected. After a debt is settled, your creditors will report it to the credit agencies as “paid”, or “settled”. However, there are many things you can do to repair your credit.

Below is a list of negative marks and their durations:

Judgment–> Depends on State
Federal Taxes –> 10 years if no lien. Until paid with lien
Inquiry –> 2 Years
Late Payments –> 7 years
Charge Off –> 7 years
Bankruptcy –> Chapter 7 is 10 years. Chapter 13 is 7
Tax Liens –> Paid is 7, unpaid, until paid, then 7
Student loans –> No time limit if not repaid

What kinds of debt can be negotiated? What other types of debt (besides credit card) can be settled? Do I have to hire someone special to handle commercial business loan debt? A special negotiation company?

All unsecured debt can be negotiated and settled. Most all unsecured debt can be settled. Credit card debt, business loan debt, store card debt, and some income tax debt (some settlement companies specialize in this) are the most common debts that can be settled.

You don’t have to use a “special” settlement company, just ask the company representative about any unusual circumstances you may have during your consultation.

How does the credit card company get paid in a settlement? How are my creditors paid after a settlement agreement is reached?

There are generally only 2 ways to get the money to pay your creditors through a debt settlement plan: Set up a payment plan with your settlement company, or get funds from a friend, relative, home equity loan, or some other such method.

Some companies will set up a payment plan for you, sort of like putting money in a “savings” account and used to pay a settlement with a creditor when enough is saved. This is a good way to establish discipline to save your money to pay your debts and can be automatically debited from your checking or savings account for convenience.

The downside to this method is that you have to wait to save up enough money to pay your creditors. Some creditors will not be willing to wait to get all their settlement money and may go after you more aggressively, but more commonly, even these creditors will set up a payment plan for you to pay the settlement amount.

The lump sum method is the other way to pay your settlement amount. This way, you have the funds available from another source, like a gift or, cash from the equity in your home. Settlements and fees are paid right after an agreement is reached. This is generally a preferred method because having funds available allows your settlement company to pursue settlements at a faster pace, so the whole process is over in a shorter amount of time. You can start to repair your credit that much sooner!

Can I negotiate settlements by myself? Why do I need to pay someone else with a settlement program?

Negotiating your own debts with your creditors is possible. However, if you are behind in your payments, creditors will use any means to extract money from you.

They will be aggressive, coercive and belligerent with you on the phone and try to trick you into sending payments (they’ll say it’ll go toward the settlement and it won’t).

If you are successful in reaching a settlement agreement, it will often be at a much higher amount than a settlement company can negotiate.

Settlement companies are experienced and will often know a particular creditor’s policies and procedures regarding settlements and can often negotiate a much lower settlement than you can do yourself.

Consolidation or settlement? Why not choose consolidation over debt settlement? I don’t want to risk my credit score being lowered a lot by not paying my credit cards.

In my opinion, settlement is a better choice. I understand the desire to protect your credit. And you should protect your credit. In fact the biggest thing you can do right now to help your credit score is to get rid of all that debt.

Your debt to income ratio will immediately improve and offset and downturn in your score caused by using debt settlement.

Debt settlement has many advantages over consolidation:

In terms of the time it takes to get out of debt:

Debt Settlement –> 9 months to 3 years
Debt Consolidation –> usually 5 years or more

In terms of the total $$ paid by you during that time:

Debt Settlement –> a fraction of the amount owed
Debt Consolidation –> full amount plus interest

Who represents you (if you hire someone to help you):

Debt Settlement –> settlement companies represent YOU
Debt Consolidation –> they are funded by the CREDIT CARD Companies

Consolidating your debts is not a bad choice, however, I think it’s not the best choice if you’ve got a lot of credit card debt and you don’t want to be paying on it for years and years.

Read the page on how debt settlement affects your credit score - you may be surprised.

Can I still use debt settlement if I’m current on my payments?

Yes. You can enter a settlement program without having missed a payment. In fact, the sooner the better. But, you will have to purposely not pay your creditors until sufficient time has passed and a negotiated settlement can be reached. This will probably be very easy for you since you’re probably on the verge of not being able to pay them anyway - it’s only a matter of time.

Your creditors will come to the conclusion that settling with you is better than getting nothing or paying high costs to pursue you through the courts.

If you haven’t missed a payment yet and have a heavy debt burden, chances are you will miss one in the near future. Between juggling all the payments to various creditors, one or two will get lost in the shuffle. More commonly, unexpected expenses arise any you will not have the money to pay your credit card bill. It’s that simple. Your debt will catch up with you.

In fact, in my case, I was putting my credit card bills ahead of groceries and gas (not smart, I know), so in reality, I should have been missing my credit card payments long ago. Instead, I was trying to protect my credit score by making payments on time. The breaking point came when I realized that I was getting deeper into debt by making my credit card payments and putting gas and groceries on credit.

Does debt settlement really work? I’ve heard of people getting out of a credit card obligation, but it only after years of not paying it and some haggling with the credit card issuer. How common is it to be able to get out of it?

I can say from personal experience, yes. Thousands of people who struggled with an overwhelming debt burden have used it to reduce their credit card debt ALOT! and become completely debt free a short time later.