What You Should Know

During the negotiation period, all payments made into the “debt settlement program” are deposited into a “Special Purpose Account” (SPA). This account should be held by a 3rd party and be under your control. The SPA  is designed to accumulate and fund settlements as they are negotiated and agreed to by all parties. Payments are NOT made to the creditors during this time. Once the accounts are in default, due to non-payment to the creditor, the debt settlement company has leverage to negotiate with the creditor to accept a reduced lump sum payment as a final settlement. What you need to understand about debt settlement is that it is not a magic pill, it’s not a “plan” or scheme and it is not a secret. The goal of debt settlement is to resolve the debts in a way that is manageable, while giving you some relief in your monthly outgoing cash flow. Debt settlement is a highly aggressive financial strategy designed to offload large debt loads that may be crushing your quality of life. In a debt settlement scenario, you could save a tremendous amount of money by paying less than full balance to satisfy the debts. What some debt settlement companies fail to tell you, however, is how it actually works.

In order for negotiations to be intiated, the accounts must be in default. That doesn’t mean you have to be in default to engage this option, it simply means that the strategy involves the debts going into default. When the creditors don’t get paid their monthly payments, they realize you are in risk of total default and may not have the ability to repay the debts at all. The longer the debts go unpaid the more risk the creditors take on. As the risk increases, they begin to look at other options to recover some of the money owed. During this time, collection activity begins and may become aggressive. As the debts age out, they become less valuable to the creditors and they will be in a position to begin negotiations. Original creditors RARELY negotiate and generally the negotiations will engage the collection agency assigned to the delinquent file. Eventually, if not collected or resolved, the debts may be sold for a greatly reduced amount to a 3rd party collector or debt buyer. These agencies are in a good position to accept a greatly reduced value for the outstanding debt(s). There are a series of disclosures that need to be made to you to ensure that you fully understand the program. There are many great websites that describe this process in greater detail. Do your homework or contact an OCCAM Certified Company who can walk you through the details and help you determine if this option is right for you.

BEWARE of Companies That Don’t Explain The Details

•  Debt settlement companies do not make payments to the creditors
• Your debts will go delinquent
• Delinquent payments will be reported to the credit bureaus
• Creditors can engage you with a lawsuit
• Creditors will call. This is an unavoidable consequence
• No outcome can be predicted or guaranteed
• The first settlement may take many months to intiate
• Estimated savings MUST include all fees
• Any estimate must be substantiated by the company’s own performance
• ALL fees must be disclosed
• No fees may be taken until performance occurs (unless exempt from TSR)
• Company must be registered in the state you reside and may need licensing

Debt Settlement can be a great way to address your debts when you are facing challenging times and need a reset. Credit can be re-established once the debts are resolved but the key to engaging a settlement program is to offload the debts before they get out of control. If you need a competent, honest provider, contact an OCCAM Certified company and get the facts. Once a thorough budget analysis has been completed and you have had a comprehensive debt consultation, your OCCAM Certified provider can direct you to the right option to best address your situation. If you are in serious financial trouble, bankruptcy could be the best option.