Frequently Asked Questions About Debt Settlement
1. What is debt settlement?
Debt settlement is a streamlined process where you hire a third-party to negotiate with your creditors. Ideally they will negotiate new payoff terms where you can reduce the amount owed to unsecured creditors. The goal with debt settlement is to pay less than you currently owe with one lump sum.
2. How does debt settlement work?
Debt settlement works best when you’re no longer paying your creditors. That’s why it’s advisable to only join a debt settlement program when you’re behind on your bills and open to saving funds in dedicated savings account. These funds are then used to payoff your creditors at amount up to 70% of your current balance. Debt settlement can be a real lifesaver in certain scenarios as you can be debt free in 2-4 years. However, you also run the risk of getting sued by your creditors and it will take a few years to rebuild your credit score.
3. What types of debts can be settled?
Any type of unsecured debt can be resolved in a debt settlement program. While most customers are looking to settle credit card debt, we also help those with the following:
Private student loan debt
Department store cards
Installment loans
Cash advances
Personal lines of credit
4. How much does debt settlement cost?
Debt settlement companies often charges fees that are equal to 15% to 25% of your total debt owed. These fees may seem like a lot, especially when you’re trying to reduce the amount you owe. But remember, our fee is only collected when a debt is successfully settled. For example, if Gateway Debt Relief settles $6,000 in credit card debt, you might pay a fee of around $1,250.
5. Does debt settlement impact my credit score?
Yes, debt settlement will affect your credit. For a debt settlement program to work properly you need to be behind on your monthly payments. Falling behind on your bills and ultimately settling your debt for less than the full balance will be a negative hit to your credit score and it can take years to recover. On the flip side though, it doesn’t make much of a difference if youre already behind on your bills or in danger of default on your debt. At Gateway Debt Relief, we take your credit seriously and we’ll work with you throughout and after our debt settlement program to improve your credit score!
6. Can creditors still contact me during the process?
Creditors can and will contact you during the settlement process and they’ll do everything they can to get you to make payment to them. Most settlement companies have strategies in pace to reduce the amount of calls you get and they’ll likely inform your creditors that you’ve entered into a settlement program with them. Gateway Debt Relief will do all we can to reduce the amount of calls you receive, but we can’t guarantee they’ll stop.
7. Can I get sued by creditors?
Yes, creditors can sue you for unpaid debts throughout the debt settlement process. However, most settlement companies can resolve debts quickly and they’ll be in communication with your lenders informing them of your progress. While it’s not always a sure thing that you won’t be sued, only a small percentage of settlement accounts end up in litigation.
8. How much do creditors typically agree to settle for?
Your settlement amount depends on a variety of factors such as the amount you owe, who your creditors are, and how far behind you are on your bills. Typical settlements range from 20% to 55% of your original balance when you first applied and in some cases we can settle for pennies on the dollar.
9. How long does debt settlement take?
Similar to your settlement amount, the process to settle debt depends on your debt scenario. On average we see customers settle their debt within 24 to 60 months and some customers can be debt free in a much quicker amount of time if they payoff their debt in one lump sum early in the process. For example, if you come across a large amount of money, you can often settle your debt in the first few months for far less than what we originally quoted.
10. What happens if I can’t complete the program?
You’ll go at your own pace with a debt settlement program and you can pay down your debt as quickly as you have money set aside for a settlement. However, if you can’t complete the program for whatever reason, your debts will still be unresolved and your creditors will pursue additional collection efforts to collect on the debt. Don’t worry if you can’t make a payment here or there, but it’s important to see a debt settlement program to then end, that way you can see the results with your debt reduced.
11. Are debt settlement companies regulated?
Most companies that settle debt are subject to state and federal regulations. This includes the Federal Trade Commission’s Telemarketing Sales Rule. Also, many of the larger nationwide debt settlement companies are members of various industry trade associates such as the American Association for Debt Resolution.
12. Do I need to pay takes on any forgiven debt?
While it’s great to settle your debt for far less than what you originally owed, you still need to pay taxes on any settled debt over $600. The amount you save is viewed as taxable income by the IRS and you’ll need to show that as income on your tax returns.
13. Are there any other ways to resolve my debt, besides debt settlement?
We know debt settlement isn’t for everyone and you may be at a point in your life where you don’t want to deal with the hassles of being harassed by your creditors. Alternatives to debt settlement include getting a loan to payoff your debt or credit counseling where your credit card interest rates are reduced. Of course the most famous option involves declaring bankruptcy and this is often seen as a last resort if you have no way to settle your debt and are looking for a fresh start with your finances.
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