Debt Settlement Questions & Answers
How long does it take to complete a debt settlement program? How much will my score decrease and how long until it recovers?
I am interested in your program but I have a few questions I would like to ask. First, I am still current on paying all my credit cards on time. I am about $15,000 in credit card debt with a couple of cards. The minimum payments on the four cards are almost getting to be too much. My questions are how long would I have to stop paying my credit cards for you guys to be able negoitiate with the credit card comapnies? Also, how negatively will this effect my score? I have close to a 700 credit rating at the moment. In you program how long would it take to pay off my loans and around what would the minimum payment be? Also, these credit cards have my bank info (routing and bank account information) with one of them being from the actual bank I use. Will this be a problem when I stop paying my bills? Also, when I do go through a program with you, how long does it take to get my credit score back in good standings? Would I still be able to get loans such as an auto loan?
First, let me clear up a key misconception in your message: Bills.com is an information-only Web site. It does not offer debt settlement or credit card counseling programs. The information at Bills.com comes from facts learned by Bills.com staff who have worked in the debt relief business, mortgage lending, and student loans. What I write below are general observations and may not represent the policies of Bills.com marketing partners.
Second, I will assume that you are asking about debt settlement and not credit card counseling service (CCCS). Debt settlement is the process of negotiating with creditors to reduce the actual principal balance of the debt. In the debt settlement industry, average negotiated settlements are around 50% of principal balance, with lower settlements seen by many consumers. For an overview of your debt relief choices, including debt settlement and CCCS, read Debt Relief Options: Which is right for you?
Third, I will answer your paraphrased questions about debt settlement below.
How long would I have to stop paying my credit cards before a debt settlement company starts settling with the credit card companies?
Generally speaking, creditors will not negotiate on a current account. Creditors will negotiate, generally speaking, when an account is charged off. Charge-off occurs 120-180 days after the last payment. Therefore, negotiations can begin four or five months after entering a program.
The deeper answer to this question varies by the circumstances for each person. The variables include
• How many accounts are enrolled in the program
• The creditor for each enrolled account
• The balance on each enrolled account
• How much the person can deposit in their special account at program start
• How much the person deposits into their special account each month
The average person enrolled in a debt settlement program will complete the program in three years. However, this varies by each person and their circumstances. For example, take two people with $10,000 in credit card debt. The person who can afford to deposit more into their special account each month will, all other things being equal, complete a debt settlement program sooner than a person who deposits less.
Similarly, compare two people with $10,000 in credit card debt. Let us say that one has that debt spread over six accounts, with some totaling $1,000 or less. Let us say the other has the entire $10,000 debt on one account. A debt settlement company will be able to settle the small accounts enrolled relatively quickly, as compared to the one large account.
The creditors matter, too. Some creditors have hard-nosed negotiating policies regarding debt settlement. These creditors would rather wait, take their chances, and demand a larger settlement than agree to an immediate and smaller settlement.
How will this effect my credit score? I have close to a 700 credit rating at the moment.
Again, this varies by a person's circumstances. We know that a person with a lofty, 700+ credit score will see a larger decrease in their credit score than a person with a lower, 500-600 credit score. The rule-of-thumb is that a default will cause a 100-point drop for a person with a 700-800 credit score.
How long would it take to pay off my loans and around what would the minimum payment be?
As mentioned, the average amount of time a person is in a debt settlement program is three years. However, as mentioned above, the length of time varies by each person's circumstances.
The minimum payment question is also difficult to answer meaningfully without knowing more about each person's circumstances.
My credit cards have my bank info (routing and bank account information) with one of them being from the actual bank I use. Will this be a problem when I stop paying my bills?
The routing and account information is not an issue. However, enrolling a credit card that was issued by your bank can be a problem. It is common for banks to reserve the right of offset, which gives smaller banks that do not have a federal charter, and credit unions the right to deduct payments from your checking or savings accounts.
You may wish to not enroll the account in question in a debt settlement program. Alternatively, you may wish to change banks to avoid the bank withdrawing funds from your other accounts.
How long does it take to get my credit score back in good standings?
In some respects, this question is similar to asking, "How much weight will I lose if I stop eating cookies?" The accurate answer depends on each person's circumstances and their other activities.
Credit score recovery varies by each person. The variables include how many accounts were enrolled, the length of time in the program, and what mitigating action each person takes to offset the decrease caused by default.
For example, if the person enrolled has other tradelines that are not enrolled and these are kept current, that person's credit score will rebound in two years or less. However, if a person has many accounts enrolled, and is consistently late on paying other tradelines, his or her credit score will remain low.
Would I still be able to get loans such as an auto loan?
This is impossible to answer because the question asks me to speak on behalf of creditors. Will a person enrolled in a debt settlement program be eligible for prime, zero-APR loans offered by vehicle manufacturers? No. Will a person enrolled in a debt settlement program be offered a loan from a buy-here pay-here used vehicle dealer? Almost certainly.
A person enrolled in a debt settlement program should be suffering financial distress, and should be focused on retiring their debt. I do not advise a person enrolled in a debt settlement program to shoulder additional debt, such as a vehicle loan. If a person can afford a vehicle loan, instead of buying the vehicle they should add those funds to the amount they are depositing into their special account so that their enrolled debt can be retired sooner.
As mentioned, read the Bills.com white-paper Debt Relief Options: Which is right for you? to learn more about the choices available to you. Each person's circumstances are different, and each person has different goals. There is no one-size-fits-all solution. Debt settlement is an aggressive solution for people who would like to achieve debt freedom in a relatively short period of time. The trade-off is a decreased credit score during the enrollment period.
To get a no-cost, no-obligation quote from one of Bills.com's pre-screened debt resolution partners, visit the debt resolution savings center.
I hope this information helps you Find. Learn & Save.