The Debt Relief Experts
Debt Settlement Program Guide
Learn what to expect from a debt settlement program, so you can decide if it’s the right solution to find relief.
I lost my job, I found another one but it pays less and I began to struggle to even meet the minimum monthly repayments on my credit cards. Thankfully 1Debt Free helped to arrange a settlement. I am now paying less than I was before and can start to work towards being debt free—Peter, current 1Debt Free client
What Is Debt Settlement?
The debt relief program with 1Debt Free is also known as debt settlement. It is designed to reduce your debt for less than you currently owe with an affordable monthly program payment that is within your budget. Our debt settlement program is a viable alternative to bankruptcy and is more affordable and flexible than credit counseling. Debt settlement with 1Debt Free does not require any new loans and there are no credit qualifications. Our program is not appropriate for all consumers and not available in all states. We take great pride in explaining our program and all of your options to ensure that you make a decision that is appropriate for you.
During the debt settlement process, you will no longer be making minimum monthly payments to your creditors. Instead, you will set aside a predetermined amount of money each month into a dedicated account that is FDIC insured. You will have access to the account 24 hours a day via the Internet and it is in your name. As funds accumulate in the account, we will be engaging your creditors and negotiating debt settlements on the balances you owe your creditors. We settle each debt one at a time until each account is resolved. Our typical debt program estimate is 24-48 months and will be dependent on the number of accounts enrolled as well as what your budget allows you to pay.
How The Debt Settlement Process Works
A key part of the debt settlement process is debt negotiation. That’s when a creditor agrees to reduce the amount you owe and “settle” the debt for less. This is a very standard process for creditors and other companies that manage debt. Many creditors routinely settle accounts for less than the amount owed. Your creditors may be among them.
You could try to negotiate and resolve your debts on your own, if you have the time and negotiation skills required. If you want to try this tactic, you just need to contact your creditors directly, negotiate with them to reduce what you owe, and get a written agreement that outlines the terms of your negotiation.
Negotiating with creditors on your own can be a long and laborious process. That’s why many people turn to professional debt settlement companies like 1Debt Free for help.
The client starts the process by accumulating savings in a special purpose account they own. At 1Debt Free, we determine our client’s monthly deposit at the start of the program, customizing their debt relief plan based on their goals, total debt amount, and budget. These savings will eventually be used to pay the settlements we reach with their creditors. Meanwhile, as they build the funds, we create the client’s custom negotiation strategy based on their particular mix of creditors and debt amounts in order to maximize our clients’ savings.
Like any other reputable debt settlement company, 1Debt Free earns money when clients pay us a fee for our negotiation services. No reputable debt settlement firm may charge fees at any other point for any other reason, per regulations established by the Federal Trade Commission (FTC). The fee is typically a percentage of the total amount of debt enrolled in the debt settlement program and can vary depending on the client’s state of residence.
Once negotiation is complete and a creditor agrees to a lower settlement, the client is presented the settlement for their approval. Once the client approves the settlement, the payments will be processed to the creditor according to those terms directly from their special purpose account. Sometimes, the settlements involve one lump-sum payment. Other settlements may be structured settlements, which means the funds would be paid in multiple payments over time. When the agreement is complete, the debt is considered resolved with the creditor, and the debt resolution services on that debt are complete.
Types Of Debt Eligible For Debt Settlement
Usually, only unsecured debts are eligible for debt settlement. “Unsecured” means the debt isn’t tied to an asset, such as a car or house. Examples include:
- Credit card debt
- Department store charge card debt
- Personal loan debt
- Medical debt
- Some private student loan debt
Debt settlement will not work with some kinds of debt, such as secured debt, which is a loan secured by a tangible asset. Examples of debts that can’t usually be negotiated include debt from:
- Vehicle loans
- Mortgages or home loans
- Federal student loans
- Other government loans
- Utility bills
- IRS (overdue taxes)
There is small business debt settlement, but it isn’t as straightforward as other types of unsecured debt. If you are a small-business owner and use personal credit cards for business expenses, debt from those cards could be enrolled in a debt settlement program. Typically, though, a debt settlement company can’t help with business debts.
Every option for eliminating debt has advantages and disadvantages. If you think debt settlement could be right for you, learn more by reviewing these pros and cons.See if you qualify
Pros Of Debt Settlement
Resolves all debt enrolled in the debt settlement program: Debt settlement doesn’t just move higher interest-rate debt to lower interest-rate debt. Debt settlement works to lower the principal balances you owe so you can put it behind you faster than you could with a loan.
Streamlines debts into one monthly payment: You make a monthly deposit into a debt settlement special purpose account in an amount that fits your budget. This deposit could be less than the minimum payments on your credit cards or monthly payments on a debt consolidation loan. It is also usually much less than the monthly payment in a debt management plan offered by credit counseling agencies.
Costs less than alternatives: Debt settlement typically costs less than a loan, since a loan charges interest on top of what you owe. In addition, settling debt generally costs less than what you will pay by making minimum credit card payments.
Has better repayment terms than bankruptcy: Debt settlement programs usually provide better repayment terms than do Chapter 13 bankruptcy filings. Plus, debt settlement helps people get out of debt without leaving a permanent bankruptcy judgment on their record.
No conflict of interest with creditors: Unlike credit counseling agencies that often accept “good faith” payments from credit card lenders, debt settlement companies work only on the consumer’s behalf.
Encourages better money habits: The best debt settlement companies help clients learn to create and use a budget, and incorporate simple personal finance best practices into their lives. Many people also benefit from the discipline required in making regular deposits into their special-purpose account that funds their own debt settlements.
Cons Of Debt Settlement
Impacts credit reports and scores: The debt settlement process requires you to go past due on accounts so that creditors will be willing to negotiate. That requirement can be uncomfortable, and it can result in a negative impact on your credit reports and credit scores.
Creditor or collection agency calls: Because you are falling past due, creditors may continue to contact you. Freedom Debt Relief offers options and information to its clients on how to handle these phone calls.
Potential legal action: Some creditors may threaten legal action or actually take legal action for repayment. A good debt settlement company will support its clients through this process. At Freedom Debt Relief, we offer an optional service with an outside law firm to represent clients should legal issues arise.
Is Debt Settlement Right For You?
Debt settlement is not the right solution for someone who has less than $7,500 in unsecured debt. If you need help with debt and have less than $7,500 of unsecured debt, credit counseling may be a better alternative.
Debt settlement also is not the right solution for someone who is focused on maintaining a high credit score during the process. In debt settlement, you need to be comfortable with the idea that your credit score could go down before it goes up again. If you have a high credit score and want to protect that score more than you want to put debt behind you for good, a debt consolidation loan may be an option to consider.
Debt settlement programs are best for people who are:
- Struggling with at least $7,500 in unsecured, high-interest debt
- Unable to keep up with payments on these debts
- Suffering a hardship—divorce, the death of a spouse, job loss, or unexpected medical expenses—that makes it difficult to have any extra income to put toward debts
- Looking for a solution that is affordable and will help them put their debt behind them, versus just consolidate all the existing debt to a new type of debt (like a loan)
Debt Settlement Companies
Negotiating debt settlements can be time-consuming and frustrating. That’s why many people turn to professional debt settlement companies to provide this service.
Choosing the best debt relief/settlement company to settle your credit card and other debts requires careful consideration. Enrolling in a debt settlement program is a major financial decision, and means taking steps to select a legitimate, credible company.
Have more questions? Call us at 800-559-1420
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