What is Debt Settlement and How Do I Know if I’m a Good Candidate?
To qualify for our debt settlement program, you must have a legitimate financial hardship, as well as a strong desire to find exactly the right form of debt relief that will work best for you. For this reason, we carefully interview each prospective client to ensure that our program is the right solution. Some important guidelines to keep in mind when determining if our services are advisable:
The majority of your debt should be unsecured credit card debt This form of debt relief is best used for unsecured credit card debt, as it allows a greater amount of leverage when negotiating, and the end result will likely be a satisfactory settlement to both the debtor (consumer) and creditor. Department store charge cards, financing contracts, medical bills and miscellaneous debts are also negotiable, even though it’s been our experience that the results are not quite as predictable as the standard credit card debt. Unfortunately, government sponsored student loan debt cannot be negotiated or discharged. Donaldson Williams is also experienced in negotiating mortgage deficiencies, as a result of foreclosures and short sales.
In order to qualify for a debt settlement program, funds must be available to pay the negotiated settlements
Once an agreement has been negotiated with a creditor, the agreed-upon pay-off amount is then forwarded to that creditor. It’s important to understand, prior to signing up for a debt negotiation program, that the necessary funds must be available once a settlement agreement has been reached with a creditor. If it’s unlikely that you can realistically accumulate these funds, (from a savings account, retirement account, home equity loan or a friend or relative) unfortunately you simply won’t qualify for this type of debt relief. Our program is designed to treat our clients with respect; therefore, we do not set up an account which you are required to deposit funds into each month. Instead, we trust that you’re serious about getting out of debt and will do everything in your power to be sure that sufficient funds exist.
Debt Settlement may result in a short term effect on your credit rating
Once a debt has been paid through a negotiated settlement agreement, it is reported to the credit bureaus as “account settled for less than the full balance” or “account settled”. Keep in mind, however, that credit card accounts that have been settled appear positively on credit reports when compared to bad debt, or a bankruptcy. Your credit rating may decline on the front end until the debts can be removed from your credit report. Your credit rating, however, will improve once again because one of the most important factors used when determining a credit score is the amount of debt you actually owe.
If you’ve found it difficult to keep up with the minimum monthly payments to your creditors, there’s a very good chance that the debt has already been reported as delinquent. If this is the case, it has most certainly affected your credit rating already. Generally this also means that you have a high amount of debt appearing, further contributing to a poor credit score. We’re pretty certain you’ll agree that you’d much rather be out of debt than be concerned with a good credit rating. Remember a lender looks at many factors to determine credit worthiness, your credit score is just one of them. If you eliminate your outstanding debt, your credit worthiness improves dramatically.
Clients generally experience an overall improvement in their credit score once the negotiation process has been completed. Of course if you become a client, we believe in being proactive to ensure that your account status is updated with the major credit bureaus sooner rather than later; therefore, Donaldson Williams forwards your settlement documentation free of charge, to all three credit reporting agencies, as well as a request to update your records immediately following the completion of a settlement. Your financial success is our success too, which is why we work extremely hard to get you out of debt and on your way to a much happier and worry-free lifestyle. You can count on our knowledge and experience to make debt-free living a reality.
There may be tax consequences
Banks are required to report all canceled debt over $600 to the IRS and consumers are required to report that canceled debt as income on their tax return. The IRS does permit you to write off any “income” from canceled debt up to the amount by which you were “insolvent” at the time. Unless you have a positive net worth (highly unlikely if you are deep in debt) then you usually won’t have to pay taxes on the forgiven debt. For more information regarding the relationship between debt settlement and taxes here.
You will no longer be able to use your credit cards
Not necessarily a bad thing, since high interest credit cards have gotten many people into debt, and a difficult situation that they just haven’t been able to pull out of. By entering our program we request that all of your unsecured accounts be closed. However, you may keep one credit card to be used in the case of emergencies. This card must be restricted to emergency purposes only and it’s highly recommended that the credit limit on the card is quite low.
Debt Negotiation can take several months to complete
The length of time to complete your program will depend on the current status of your accounts, the amount of debt you owe and the source from which you’ll be relying on for funds. Donaldson Williams will advise you of the amount of time it will take when we talk with you during your free debt settlement consultation. And remember, in order to fit your schedule, we’re also available for evening consultations.
Debt Negotiation is not the same program used when dealing with Consumer Credit Counseling Services
Credit counseling services usually work for your creditors, as they are (at least partially) funded by your creditors, earning a percentage of what you pay to your creditors. In most cases, you will be expected to pay 100% of your debt, sometimes with reduced interest, by making smaller payments over a longer time period. Because credit counseling makes its money by earning a percentage of the amount you pay your creditors, their incentive is to get you to pay 100% of your debt, rather than to sit down and negotiate a reduced settlement amount with your creditors. Once an agreement is reached, you never have to make another payment toward your debt!
It is simply not possible to guarantee any specific settlement amount
While representatives at Donaldson Williams have seen many excellent results through debt settlement using tested and proven procedures, just like a good surgeon can’t guarantee the outcome of an operation, we can’t guarantee what each negotiated agreement with your various creditors will be. We simply know that we’ve consistently produced some very positive success stories for our clients. While past performance is a good indicator of the results we may expect to reach, it is certainly no guarantee of future results.
It is not recommended to attempt debt settlement on your own
Negotiating your debt by yourself is possible, but it’s not likely that the end result will be a positive one. Banks rarely take debtors seriously and are well prepared for the amateur do-it-yourself negotiator; as a matter of fact, it’s quite normal for the representatives at your bank to have prearranged scripts waiting for your phone calls. You’ll hear a lot of “we do not settle debt under any circumstance” and “I can transfer you to a department that may be able to help you qualify for our hardship program.” Most consumers simply give up at this point because they feel that debt settlement isn’t possible and there’s no end in sight. Fortunately, hiring a third party debt negotiator can make all the difference because your creditors will no longer have the ability to harass and manipulate you. If you’d like to attempt debt settlement on your own, be sure to research properly and educate yourself before talking with your creditors.