How Debt Settlement Companies Work

There are two ways to offer debt settlement. One method is the long-term approach. The long-term approach puts you in an adversarial situation with your creditors generally for 36–48 months, stunts your ability to rehabilitate and recover, greatly increases your chances of being sued, exposes you to potentially years worth of interest, and according to our federal government has less than a 10% completion rate (see page 2, paragraph 1 when clicking the link). This is how most debt settlement companies work.

The other method is to use a financial resource to settle your debts right away. Since you’ll generally settle your credit card debts in a matter of months with my approach (my average client completes my service in 108 days), you will minimize the adversarial nature of debt settlement, rehabilitate and recover much more quickly, minimize your exposure to lawsuits, minimize your exposure to interest, and you will benefit from the high probability of success.

Between 1/1/2002–9/25/2014, 88% of my clients settled or entered into a payment plan on ALL of their enrolled accounts. And 92% of my clients settled or entered into a payment plan on ALL but 1 of their enrolled accounts.

Why the difference? What is the best possible thing you could do when you’re behind on your debts? Address and resolve them right away, right?

That’s why I have the highest success rate in the debt relief industry. Because that is the entire premise of my service. I don’t encourage people to financially ignore their creditors for years.

My approach is the exact opposite. I help you find a way to resolve your debts right away.

how does debt settlement work

If you’re debating settling your debts: WATCH THIS VIDEO

Since 2002, I’ve been the only debt settlement provider in the country who specializes in negotiating settlements for people who can settle ALL of their delinquent debts right away.

Please read through this material to become familiar with the various considerations you should make when contemplating the idea of settling your debts…

Please understand: much of what you’re about to learn has little to do with my services.

Although, you should still read this information as some of it does apply.

When you utilize an asset to generate the funds needed to settle ALL of your debts right away, most of the cons with debt settlement are mitigated.

However, I think it is highly important for you to understand this information in case you don’t have a way to settle right away, and you’re considering a more long-term approach.

I’m very passionate about sharing this information, as I personally witnessed, back when I was in the collection industry, the financial devastation suffered by so many people who had hired a long-term debt settlement company.

And please understand, the issues that I’m about to warn you about have little to do with who you hire to help. It’s the common method in which debt settlement is typically offered that makes debt settlement so dangerous and unreliable.

This page is the first part of a 4-part series that explains how debt settlement works. If you are debating settling your debts, please read all 4 parts so you can gain a firm understanding about the particulars when settling your debts.

how does debt settlement work

How does debt settlement work

A lot of consumers commonly mistake credit counseling for long-term debt settlement, in the sense that the monthly payments they make will be immediately disbursed to their creditors (credit card companies).

That’s not how debt settlement works.

The way it works, when settling your debts via the long-term method, is instead of you making your payments to your creditors, you’ll have the money drafted from your checking account and placed into a savings account.

You will then accumulate the funds you would have normally sent to your creditors, month after month. When you accumulate enough funds, you will settle one of your accounts.

You will then rinse and repeat this process until all of your delinquent accounts are settled.

The idea is for you to do this throughout the duration of your debt settlement program.

Since you won’t be making any payments to your creditors, the only time your accounts will be financially addressed is when they are actually settled.

how debt negotiation works

The most important consideration to make when debating debt settlement is how long it will take you to settle your debts…

Most consumers only pay attention to the proposed payment of their debt settlement plan.

Which makes sense from the consumer perspective, because typically the immediate need when people seek help with their debt is to lower their monthly payments.

So when consumers are presented with the opportunity to resolve their problems within the confines of their financial ability, they naturally will find it to be an attractive proposition.

Which again makes perfect sense.

However, the problem is: the lower your monthly payment, the longer it will take you to settle your debts.

In the normal course of paying off debt that isn’t a major issue.

As in that scenario, you’re still making payments to your creditors and they’re not coming after you in an attempt to collect their funds.

However, when participating in debt settlement: that’s not the case.

Remember, the money you would normally send to your creditors isn’t going to them. And the longer the time your creditors aren’t being paid, the more aggressive they become.

This is the part a lot of consumers who participate in debt settlement fail to think about.

Which is understandable, because how would they know to do so? There isn’t a class in high school or college that teaches them to do so. And most debt settlement companies aren’t going to fully explain just how dangerous a maneuver it really is.

So with this information in mind, the most important aspect of settling debts is the length of time it is projected to take.

It has nothing to do with your proposed monthly payment.

Quite simply, the longer it takes you to settle your debts, the more likely you’ll be sued and probably not complete the program.

debt settlement process

Debt settlement is only a viable option when you can generate your funds to settle quickly…

I hope you now have a better understanding about how debt settlement companies work.

Ideally, you have an asset or a financial resource and can settle your debts simultaneously. That’s what I help people do.

If not, the key to being successful with debt settlement is the amount of time your debts go unpaid. I don’t recommend settling your debts if you think it will take more than 24 months (ideally less than 12 months) to settle all of your accounts.

I’m an old debt collection insider, a former Collector of the Year for a major debt buyer. I’ve also held positions of corporate trainer, collection manager, and director of collection operations.

The reason why I put a limitation of time when recommending debt settlement has everything to do with the debt collection process. If you’re considering settling your debts, it is absolutely critical that you learn about the “typical collection cycle” and how collection agencies work.

Read Part 2: How Collection Agencies Work