Is Debt Settlement the Right Choice?

A Straight Talk on Debt

A Straight Talk on Debt gives you the real deal on debt, straight from our employees and personal finance experts. Learn more about debt relief plans and how to be financially fit.

Is Debt Settlement the Right Choice?

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We understand getting out of debt is hard and we want to help you make the best choice for you. If you can no longer keep up with your credit card payments and a Debt Management Plan does not fit into your budget, debt settlement may be the right choice.

Is Debt Settlement the Right Choice?Debt Settlement is a debt relief option for those who can no longer keep up with their payments and want to avoid filing for bankruptcy.

There are many benefits and challenges to consider before enrolling in a Debt Settlement Plan or negotiating with your creditors on your own. Let's take a look at some of the pro's and con's to debt settlement.

Benefits

  • Lowers your monthly payment towards debt.
  • Reduces your overall amount of debt.
  • Potential to get out of debt sooner; typically 3-5 years.

Challenges

  • To settle your accounts you will need to set aside money to do so; either on your own or with your debt relief provider. These funds are held in a bank account or escrow until negotiated settlements can be reached.
  • Settling accounts has a negative effect on your credit score due to your accounts becoming delinquent.  While settlement may hurt your credit temporarily, in the long run, it's better to get out of debt and avoid the effects of bankruptcy.
  • With any type of settlement there is the possibility of tax ramifications on the "forgiven" debt.
  • Collection calls due to delinquent accounts.
  • Possibility of being sued, wage garnishment, and legal action.

 

A CareOne Debt Relief Services Debt Settlement Plan

Deciding which debt relief provider you should use to help you settle your debt can be just as difficult as deciding to settle your debt. Doing your homework and research can help you select a provider that is right for you.

  • Enrollment process.  CareOne's enrollment process is different from our competitors as we explore all debt relief options prior to enrolling you in a plan. We complete a detailed budget analysis to identify potential areas you could adjust your spending.
  • Fee structure.  CareOne's fee structure is based on contingency fees; paid only when a settlement has been reached. This is different than many of our competitors that require full payment up front before they begin to work on your debt.
  • Escrow account.  The calculated monthly payment is deposited into an escrow account to use for settlement with your creditors. The sooner your escrow account builds value; the sooner settlements can be made with your creditors.

Debt Settlement is not an easy road

Whether choosing to negotiate with your creditors on your own or with the help of a debt relief provider be prepared for the stresses associated with settling your debt.

  • Calls.  Your creditors and collection agencies will most likely call incessantly during the first few months because the accounts are delinquent and they think the best way to get you to pay is to call! If it did not work, they would not do it.
  • Threats.  Creditors may tell you they do not accept settlements or that they do not work with debt relief providers. This is most likely not the case; they are just trying to intimidate you into making a payment.
  • Settlements.  Typically creditors accept 45 - 60% of the original balance owed to your creditors. While this helps to reduce what is owed it is important to understand the creditors want payment in full when they agree to settle; this is why rapidly building your escrow account is so important.

Debt Settlement is not a quick fix; the process takes time and lots of patience. In order to be successful you must be fully committed to sticking with it. So if you decide debt settlement is your best option be prepared for all that goes along with it.

Suzanne CramerSuzanne Cramer 

Suzanne is a certified credit counselor for CareOne Debt Relief Services and is a Social Media Specialist. Suzanne supports our Ask the Expert forums as a coach and writes for our A Straight Talk on Debt and Divorce, Debt and Finances blogs. You can also follow Suzanne on Twitter where she shares the latest debt industry news, and tips to keep your finances in check with her @AskCareOne and @ADivorcedMom accounts. 

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  • I was told on the phone that you didnt do debt settlement! My account was canceled and I hung up calling a lawyer reguarding bankruptcy! It costs $1,700 to file bankruptcy ans the lawyer said with the small amount I owe, just let them call! He wouldn't concider bankruptcy for onlu $5,700! I am so stressed now! Why couldnt you guya help me after 20 months of payments! I feel very depressed now! Don't tell me in a letter you do settlements and then I call to ask and the lady on the phone she said you don't do settlements! Well CareOne thanks!

    Nancy Carolla Lazarian

  • @Nancy I am so sorry to hear about your situation. The settlement plan does require a minimum of $7500 in unsecured debt to qualify. I was unable to locate your account so i could not research your situation further. From your post it sounds as though you may have been participating in a debt management plan and I am not sure what has happened. We want to assist you with your situation if we are able to. Please feel free to send me a private message so I can assist you further.

    Suzanne

  • Care one wasn't much help, said they would settle my accounts for lless than i owed, 1 accout was a little over 400, interest & all totaled almost 1200, they settled for 800, which was almost twice what i owed,  now my wages are being garnished for another account. i cancelled my account, I think i could have probably made better arrangements with each debtorm Very Disappointed with Care  One.

  • @dfresh I am sorry that your experience with settlement was not a positive one. Our goal with settlement is to settle the accounts as quickly and for less. While your ammount owed was 400 the balance was 1200 so you did see a savings on your debt. The most important thing to understand with settlemetn is that it is not a quick fix and it will take time and patience on your part as we are negotiating with your creditors.

  • Nancy, do you know why the require a minimum of $7500?  It's becuase they don't make any money if you don't have a lot of debt since they charge a percentage of your debt.  Talk about putting the consumer first huh?

  • @Karen the reality is that in order for creditors to consider a settlement offer they look at your entire debt portfolio. The creditors have established minimum debt levels that they will consider for the debt settlement plan. We at CareOne agree that all consumers should have options, which is why we offer a Debt Management Plan and a Debt Settlement Plan. The minimum level of debt for a Debt Management Plan is $2500. Learn more about our options here: www.careonecredit.com/.../debt-relief-plans.aspx

  • I have worked in the financial industry for 9 years. I can tell you that a Debt Settlement is a tough decision. I would suggest a management program over it. With settlements, they stay on your credit as a negative mark for 5-7 years. Also you WILL pay taxes on the forgiven amount. Say you had $20,000 in debt and settled it for $8,000; you would receive a 1099-C Tax form and the forgiven amount (in my scenario $12,000)  would be considered un-taxed income. This can be tough at tax time as it could cause you to have a tax bill to the IRS.

    That aside, if a Settlement program is your only alternative to bankruptcy than a settlement program is considered a better option.

  • @CoachSuzanne  So you're telling me that a collection company will look at other accounts you have to determine whether they will settle with you?  How does that make sense?  Looking at the bigger picture in economic terms, if I was a collection company I wouldn't care who you owed money to.  My #1 priority is recovering MY money.  I could care less about who you owe money to.  

    Creditors do NOT have a minimum amount of debt that you need to settle for.  You can settle a $100 account similar to settling a $100k account.  The truth is that CareOne charges a %tage of total debt amount, so it's not worthwhile for CareOne to spend time to settle a $2000 account only to make about $300 on the client since your customer acquisition cost is greater than $300.

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