What is debt settlement?
Debt settlement is a process of eliminating unsecured debts by agreeing to pay a smaller amount than the current balance. Because this is typically done in one lump payment upfront, creditors are willing to accept less than the total amount due.

What is the difference between debt settlement, debt consolidation and credit counseling?
Debt settlement treats each individual account as a separate debt, and saves the debtor a significant amount of money in the long run, 40-60% on average. Debt consolidation rounds up all of the debtor’s delinquent accounts. The creditors typically agree to lower interest rates and eliminate or reduce late payment charges. Credit counseling is basically like a counseling session regarding your finances. A professional credit counselor will review your debt history, your debt-to-income-ratio, and your spending habits, then advise you on how to approach knocking out your debts, and live a financially healthy lifestyle.

What’s the difference between secured and unsecured debt?
Secured debt is debt that has collateral attached to it. Secured debt typically cannot be settled, because if you do not pay it, the creditor/loan source will collect on the collateral. Examples of secured debt are home and auto loans. Unsecured debt does not have collateral, and are loans that are given on the basis of merit – most often, good credit. Examples of unsecured debt are medical bills, credit card bills and personal loans.

Will debt settlement hurt my credit?
Chances are that if you are considering debt settlement, your credit is already hurting. But yes, debt settlement will temporarily do some damage to your credit, as your accounts need to be delinquent before a creditor will negotiate any kind of settlement with you.

What are the tax implications of debt settlement?
For tax advice, please consult with you licensed tax professional. However, we can provide a few details regarding how debt settlement can affect your taxes. If you save $600 or more on a settlement, you will need to report that as taxable income. The original creditor will send you, and the IRS, a 1099-C form at the end of the tax year. There are exceptions to this, so please do consult with a tax professional for further information.

Can I keep my credit cards?
You cannot keep accounts that you intend to settle.

Will I still get phone calls and letters from my creditors?
Yes. Your accounts will be past due, therefore creditors will contact you in efforts to collect what’s owed to them. There are ways of circumventing, even ceasing, the phone calls, which is discussed on another part of our site.