The Center For Debt Management
Debt Relief

Debt Consultation

Debt Settlement

Debt Consolidation

Debt Management

Credit Counseling

Filing Bankruptcy

Budget Software

Tax Debt Relief

Student Debt

Business Debt

Stop Foreclosure

Credit Report

Legal Resources

Credit and Financing

Financial Resources

Income Resources

US Tax Center

Insurance Center

Financial Library

Financial Bookstore


How A Debt Settlement Company
Works To Settle Your Debts For Less

In general, a debt settlement company negotiates on behalf of the borrower with each creditor placed in the program to settle the overall debt in exchange for an agreed upon settlement payment to be made by a specific date. Typically, only credit card debt and other unsecured debts are negotiated, for example, mortgages, student loans, and usually auto loans, cannot be placed in the program.

For the debtor, this makes obvious sense — they avoid the stigma and intrusive court-mandated controls of bankruptcy while paying off their debt balance, sometimes by more than 50% of what was owed. As for the creditor, while taking a loss, it receives a partial amount of what is owed, but avoids further expenses that might otherwise be incurred through collection efforts and also the chance of the debtor eventually filing for bankruptcy — in which case, the creditor risks losing all monies owed.

There are obvious drawbacks — credit reports may show evidence of debt settlements and the associated FICO scores may be lowered as a result. There’s always the possibility of lawsuit whenever debts go unpaid and this may occur if the parties are not able to reach an agreed settlement amount and the creditor believes a lawsuit would result favorably on their behalf. This being said, however, although a creditor might receive a judgment, the creditor is not guaranteed that the debtor will ever have the ability to pay off the judgment amount.

To speak with a certified debt professional, we strongly suggest that you call 1800 DEBT.COM (that's 1800-332-8266) for a FREE debt consultation. There is absolutely no obligation, the conversation is completely confidential and the debt professional can answer all of your questions and, if so desired, can help place you in a program that meets your needs and resolve your financial troubles.

Debt Settlement Companies

In order to work with a debt settlement company, the debtor needs up-front cash, or alternatively have the ability to build up enough funds over a pre-determined period of time. Once sufficient funds are built up to settle one of the debts, the negotiation process can begin. In the meantime, the debtor continues to save funds, typically in a special account, to settle another debt, until all accounts placed in the program have been settled.

The negotiator may have to dealt directly with the original creditor, or a third party collections agency. In many cases accounts are sold to collections agencies, typically for $0.25 to $0.15 on the dollar, and in some cases even lower.

The debt settlement company typically negotiates with the creditor or collections agency for 35% - 50% of the existing balances. In many cases, debt settlement companies have built up a relationship during their normal business practices with various creditors or collections agencies and can come to a settlement agreement quickly. Once the debtor pays the agreed upon amount, the debt settlement companies take a percentage of the savings of the forgiven debt as the fee. With the current economic crisis, more and more creditors are willing to settle existing debts rather than to add to their already large written off bad debt.

Unlike Consumer Credit Counseling Services (CCCS), debt settlement companies do not pay the debtor's creditors each month. Instead, the funds saved by the debtor are put into the debtor's trust account.. The creditors may not be told of the "arrangements" with the debt settlement company. A legitimate company will use an FDIC insured company for the trust account and give the debtor access to it online 24 hours per day. They should also provide the debtor with access to the negotiation correspondence with the credit companies.

The debt settlement company may or may not handle calls from the creditors, or the collection agencies. Credit card accounts typically go into collection after they are charged off, typically 180 days after the last payment on the account. The length of the program is often 1-5 years. Unfortunately, in some cases, debtors wind up being sued or in debt even more deeply with added interest and fees piling up. This can be avoided by using professional debt settlement companies that take appropriate steps to protect consumers from these procedures.

Creditor’s Incentives

The creditor’s primary incentive is to recover funds that would otherwise be lost if the debtor filed for bankruptcy. The other key incentive is that the creditor can often recover more funds than through other collection methods. Collection agencies and collection attorneys charge commissions as high as 40% on recovered funds. Bad debt purchasers buy portfolios of delinquent debts from creditors who give up on internal collection efforts and these bad debt purchasers pay between 5 and 25 cents on the dollar, depending on the age of the debt, with the oldest debts the cheapest. Collection calls and lawsuits often push debtors into bankruptcy, in which case the creditor often recovers nothing!

Need to Get Out of Debt! — Call Right Now — 1800 DEBT.COM

Debt and Financial Related Articles:

How Debt Settlement Companies Settle Debts For Less
The Effect of Debt Settlement On Your Credit Report
Common Objections To Consumer Debt Settlement
Debt Management vs Settlement: Which Alternative is Right?
Do-It-Yourself Debt Settlement & Debt Settlement Kit
Your Alternatives When Faced With Financial Hardship
FAQ Relating To Debt Cancellation and Foreclosure
Charge-Offs: How it Relates to Consumers and Credit Report
Out of Work? How To Deal With Creditors
Insolvency: What It Means To Be Insolvent
Knee Deep in Debt? Self-Help Guide
Practical Advice On How To Save and Manage Money
Default: Failing To Meet Your Legal Obligations
How To Manage Your Debts To Regain Financial Health
Debt Consolidation: Do You Know the Facts?
Ways to Cope Financially During and After a Big Change
Helping Your Money Last... After Your Last Paycheck
Guide To Understanding Foreclosure
Deficiency Judgment (On Foreclosure Sale)
Business Debt Restructuring and Debt-for-Equity Swaps
Mortgage Payments Out of Control? Here's What to Do
After You Retire: Managing Your Expenses on a Fixed Income
Beyond The Statute of Limitation: Time-Barred Debts
Taking Charge of Your Credit Cards
Debt Consolidation Options
What is an Offer in Compromise
What You Must Know Before Filing an IRS Offer in Compromise
Tips for Protecting Your Home From Foreclosure
Foreclosure Prevention Frequently Asked Questions
A Word of Caution For People On A Debt Management Plan
Tips For Parents:Teaching Children The Financial Facts of Life
Credit Matters: A Primer on Credit Card Use
Using Plastic: A Young Adult's Guide to Credit Cards
Home Loans: How to Keep Costs from Going Through the Roof
Guide To The New Bankruptcy Laws
Guide to Understanding Contracts

Over 2,000 Pages of Content


• Avoid Filing For Bankruptcy

• Reduce Your Debt Up To 60%

• No Credit Checks To Qualify

• No Home Ownership Required

• Be Debt Free In 12 to 36 Months

• Effective Debt Settlement Plans

• Your Path To Living Debt Free



(That's 1800-332-8266)

For a No Obligation Confidential

A Professional Debt Counselor Is Standing By and Waiting For Your Phone Call This Very Moment


Or, Click Here To Apply Online
and For Other Debt Relief Options


Protect Your Company's Assets

Click For a No Obligation

Center For Debt Management

Center For Debt Management

The Center For Debt Management

Helping Consumers Save Money and Reduce Debt Is Our Only Business!

We invite you to explore the sectors listed below. We promise that you'll find exceptional values, offers and resources to reduce your living expenses and to enjoy life! But First—if you're over-your-head in debt—get a free no-obligation debt consultation right now!

Debt Management and Financial Services! The Internet's oldest and most comprehensive debt management agency! Resources for debt management, consumer credit counseling, debt consolidation loans, debt settlements, legal aid, financial aid, credit and financing, credit reports, budget software, insurance, income resources, tax assistance and more. Get out of Debt! Call Now — 1800DEBT.COM

Established In 1989 and Serving The Online Community Since 1992!

Get Out Of Debt: Call

Center For Debt Management