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Debt Relief Questions & Answers

Below are some questions that we frequently receive from visitors to our site. If you have a question, feel free to email us at questions@experiencedebtrelief.com. Please allow 24 to 48 hours for your question to be answered.

Q: What kind of debt qualifies for debt relief programs?

A: Any loan that is considered unsecured, which means that there is no collateral backing it up that a creditor could take if you default on a loan. Credit card debt, hospital bills, legal fees, past-due rent, unsecured bank loans, and personal loans are all classified as unsecured debt. "Secured" debt would be a mortgage or auto loan. Other things that cannot be settled include student loans, payday loans, and taxes.

Q: What will debt settlement do to my credit?

A: While you are enrolled into a debt settlement program you will stop paying your creditors. While this has a negative effect on your credit, its purpose is to allow you to put money aside for settlement. Once a negotiator reaches an approved settlement with your creditor and the creditor is paid, it will be marked on your credit report as a "settled charge off". This is far better than a bankruptcy and when all accounts have been settled, you will be able to rebuild your credit.

Q: What will a debt management plan do to my credit?

A: When you set up a debt management plan with a consumer credit counseling service, the debt that is enrolled will be marked as TPA (third party assistance). It will typically be classified a 'not paid as agreed' and have a negative effect on your credit score. This is better than bankruptcy or simply doing nothing and having the creditor "charge off" the account.

Q: Is debt settlement legal?

A: While it is an aggressive approach to getting debt relief, it is completely legal and ethical and has been around as long as the concept of debt itself. It is a better solution for creditors than you filing for bankruptcy or the account being charged off because they will typically not be reimbursed at all.

Q: What fees are involved with Debt Settlement?

A: Some companies may charge a fixed monthly fee and others will charge based on the amount of debt settled. Avoid companies that require you to pay a lump sum upfront before providing any service. Look for companies that only charge you after an account is settled.

Q: How do I know if debt settlement is for me?

A: If you are experiencing financial hardship and your unsecured balances exceed $10,000 than you are applicable for debt settlement. You must be committed to becoming debt free and have a strong desire to avoid bankruptcy. If you are not committed to fixing your financial situation, no debt relief solution will be effective.

Q: Will I be sued by my creditors?

A: This is a very common question that we hear all the time. While a creditor does have the ability to sue you and collect the money that is owed, it rarely happens. If a line of communication is kept open through a negotiator the likelihood is minimal. The costs for a creditor going to court far exceed the benefits.

Q: What sort of budget should I expect with debt settlement?

A: If you are able to make your minimum payments right now as well as cover your living expenses, you should allocate that money towards settling your debt. However, if that is not possible, expect to put around $125 to $200 per $10,000 owed. If the amount owed is $40,000 you would budget $500 to $800 per month towards your new payment.

Q: Is it possible that I Will have to pay more in taxes?

A: Unless you have a positive net worth you usually won't be required to pay taxes on the forgiven amount. You, the banks and creditors are required to report canceled debts that exceed $600 to the IRS. However, you are allowed to write off any income from the canceled debts up to the total amount by which you were insolvent.

Q: What if a creditor refuses to negotiate a balance?

A: We have yet to encounter a situation where a creditor refuses to negotiate. A creditor may counter with a different offer, but when a creditor is faced with the options they have to collect the money, reaching a settlement is typically the most cost effective for them. Suing you is very expensive and may not result in them collecting anything at all. If you file for bankruptcy the chances of them getting anything is also extremely slim.

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