FAQs

quick debt answers to your debt questions.

Is it true that credit counseling agencies are friendly with the credit card companies whereas settlement companies not so much?

Generally this is true. The credit card companies actually pay credit counseling agencies to help assist debtors because a debtor who is a client of a credit counseling agency will end up repaying everything he/she owes over time. However, debt settlement companies reduce the amount the credit card companies ultimately collect so it’s a different type of relationship. Not necessarily bad but certainly the credit card companies prefer people use a credit counseling agency over a debt settlement company.

Can I settle debts on my own by negotiating myself?

Sure you can try. Just like doing taxes takes lots of knowledge and time requiring people to hire tax preparers so does debt settlement. You can do it on your own but be ready for a steep learning curve, lots of paperwork, phone calls, and likely frustration. The established debt settlement companies already have a process for their negotiations, they have the right contacts in the banks already established, and they negotiate millions in debt every month so they may be able to leverage that into a bigger debt reduction than you can do on your own.

How much do debt settlement companies charge?

Their fees vary but they are no longer allowed to charge upfront fees as they are paid on performance as mandated by the government. Now they charge based on a percentage of the money they save you. So if you owe a credit card company $23,000 and the debt settlement company negotiates a reduction with the credit card company for you to say $10,000, then you will owe them between 15-30% of the savings (in this case the savings was $13,000). Each company has a different fee structure.

Can the credit card companies sue me?

Yes, anybody can sue anybody for a default. Generally credit card companies rarely sue to collect if a person is working with a professional debt relief company. If you do nothing and ignore their requests to repay them without help from a professional debt relief firm, you may increase your chances of a lawsuit. We do not give legal advice and so you should consult a lawyer for more information.

Will debt relief hurt my credit score?

Yes it may depending on the type of debt relief program you enter into. Generally speaking a credit counseling program will hurt your credit score much less significantly than a debt settlement program since in debt settlement you actually stop paying your bills and go into default for a period of time.

I’ve Seen Obama debt relief advertised, what is it?

There actually is no Obama or Federal government credit card debt relief program. There was a federally regulated program to help people underwater in their mortgages after the 2008 financial crisis. That was done in conjunction with the banks who held many underwater mortgage loans.

Unfortunately there has been some deceptive advertising making people think that there is an Obama sponsored credit card debt relief program but there is not.

Can I settle student loans?

No. Student loans cannot be negotiated but there is modest assistance available for people seeking to consolidate multiple student loans. There are special student loan consolidation companies that do this.

Is there a tax consequence I need to be aware of?

Yes, with debt settlement there is. You should speak with your tax advisor about debt settlement if you are considering it as the IRS may deem any savings from the reduction you get on your debt (the settlement) as income you owe taxes on.

How can I afford professional debt relief services?

These companies understand that your finances are tight and so their fees are either really low or are based purely on their performance. In the case of debt settlement, you typically pay only if they are successful at reducing your debt amount owed.

Are these companies non-profit?

Many credit counseling agencies to have non-profit status from the IRS. That means they are closely monitored, their fees are regulated, and they do not have to pay taxes on their profits.

However, that does not mean their services are totally free, there is still a modest fee. Debt settlement companies are never granted non-profit status only credit counseling agencies.

What are the risks of credit counseling?

Like debt settlement your credit score can be affected although much less so than with debt settlement because you do end up repaying everything you owe unlike with debt settlement. Typically credit counseling is a longer process than debt settlement.

What are the risks of debt settlement?

Because debt settlement is a negotiation process to reduce your debt, an adversarial relationship develops since your creditor want to be repaid the full amount owed. Lawsuits are very rare but always possible and can typically be avoided by a reputable and respected debt settlement company. Also you will damage your credit score during the debt settlement process.

What type of professional debt relief help is available?

There are 2 common types.

Debt settlement companies and credit counseling agencies. Debt settlement is a negotiation process that attempts to reduce your overall balances so you pay less than you owe.

Credit counseling is a more moderate process that attempts to combine your bills into a single monthly payment with lower interest rates and fees than you may be currently paying.

What debts can I consolidate?

Pretty much any debt that you will not be adding to. For instance, credit card bills, personal loans, and past medical bills.

How can I consolidate my debt?

You can either get a large loan (typically done with a mortgage refinance) to pay off all your small debts leaving you with one large monthly payment or you can use a professional debt relief service to consolidate your debts.

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