When you begin a debt settlement journey, you may be surprised to discover that an essential part of the program involves delaying payment to your creditors. Instead of making monthly payments on each of your enrolled debts, you make one monthly deposit into a Dedicated Account that will be used to pay your debt settlements throughout the program.
You may have already stopped paying your creditors before beginning your debt settlement program due to financial hardship. However, if you are still paying your creditors, delaying payment is your first step to get started.
DEBT SETTLEMENT BEGINS WHEN YOU DECIDE TO DELAY PAYMENT TO YOUR CREDITORS
Initially, this change may be viewed by your creditor as a non-payment or delinquency. However, you are merely delaying payment. Once we begin negotiating with your creditor to reach a debt settlement, they will understand that you are willing to pay them but only under the terms of a settlement agreement.
Bottom line: Your creditors will still get paid, but it will be under the terms of a settlement that is much better for you than the original terms.
COMMON CONCERNS ABOUT DELAYING PAYMENT TO CREDITORS
It’s normal to be concerned about the impact of this strategic choice. Choosing to delay payment to your creditors until you’ve reached a settlement agreement can impact your credit score. You may also feel anxious about allowing your accounts to go “past due” while we negotiate your debt settlement.
Here are answers to common questions you may have about delaying payment to your creditors:
Why is it important to stop paying my creditors?
Delaying payment allows you to save money in a Dedicated Account. You will put these funds toward a debt settlement with terms that get you more from your money. This strategy encourages your creditor to negotiate for a settlement as soon as possible so they can receive payment.
Will delaying payment affect my credit score?
Yes, your credit will drop, but the impact can be overcome. Most clients feel that a moderate and repairable drop in credit score is worth the peace of mind they feel knowing they are resolving their enrolled debts for good.
What happens to my late fees?
Your creditor will add late fees to your balance. However, your debt settlement will resolve all amounts owed to the enrolled creditor for less than you owe.
DELAYING PAYMENT ENCOURAGES CREDITORS TO SETTLE
Deciding not to pay your creditors until a settlement is reached helps create the leverage we need to negotiate lower settlements. Most creditors don’t mind working with debt settlement companies because it usually guarantees they will get some payment to settle a debt. Even though the settlement can reduce the debt by 50% or more, it is worth it to the creditor who would be inconvenienced by continued attempts to collect debts or lawsuits for unpaid debt.
However, if the creditor thinks there is any chance you could continue making regular payments on the debt, they may not agree to a settlement. Pausing payment demonstrates to the creditor that you are experiencing financial hardship. It encourages them to take your situation seriously and work with you and your certified debt specialist to settle.
By comparison, Chapter 7 bankruptcy is worse for the creditor than debt settlement because it discharges the debt with no payment.
DEBT SETTLEMENT IS A RESPONSIBLE CHOICE
Not being able to meet your financial obligations is stressful and can induce feelings of guilt. However, people who choose debt settlement often do so for reasons outside of their control. Events like job loss or serious medical expenses can derail your finances through no fault of your own.
Here are some concerns about settling a debt for less than you owe:
I feel guilty about not paying my debt in full.
Unfortunately, many types of debt, especially those with high-interest rates, are designed to trap you into a long repayment term that can cost you double or even triple the original amount of your debt. Being conscientious about your responsibilities is an admirable quality, but you need not feel guilty about pursuing a reliable and effective debt relief method like debt settlement.
Will future lenders judge me for having a debt settlement?
72%* of people surveyed after graduating from our debt settlement program reported taking on new debt within 3 months. Future lenders will be able to see a debt settlement on your credit report. While it may affect the terms of new debt, it probably won’t prevent you from taking on new debt, like credit cards or car loans.
How can I build my credit after a debt settlement?
Focus on repairing your credit by maintaining a good payment history and keeping your debt to income ratio is low.
Learn more about good habits that can repair your credit following debt settlement.
DEBT SETTLEMENT IS A BETTER USE OF YOUR HARD EARNED MONEY
In the long run, saving for a settlement is a much better use of your money than minimum monthly payments. Before debt settlement, you were barely chipping away at your debt because of high-interest rates and fees. Settling allows you to fully resolve the debt for a fixed amount, putting an end to debt balances that can double or even triple if you pay them off in minimum monthly payments.
Working with a creditor to reach a debt settlement can improve your quality of life and set you on a path to a better financial future.
DON’T FEEL GUILTY FOR SETTLING YOUR DEBT
People who choose debt settlement frequently do so for reasons outside of their control. Financial events such as job loss or emergency medical expenses can derail your finances through no fault of your own. Debt settlement allows you to work with your creditor to resolve your debt responsibly.
Creditors make billions of dollars in interest every year. When they agree to a debt settlement, they do so because it is pragmatic—they would rather receive some money rather than no money on your debt. Nevertheless, their survival does not rest on your debt and you are not putting them out by seeking a settlement. You are merely delaying payment by negotiating terms that are reasonable for you and your financial circumstances.
DEBT SETTLEMENT IS A FRESH START
If you think your financial habits contributed to your debt problem, it’s ok to think critically about changes you should make. Debt settlement is an opportunity for you to start fresh with your finances. A debt relief program is also a great learning experience. 72%* of our recent graduates felt that their financial habits improved after going through debt settlement. An additional 16%* reported that they were confident in their financial practices before and after completing their debt settlement program.
If you are trying to decide if debt settlement is right for you, the best way to be sure is to speak with a Certified Debt Specialist who can answer all of your questions and alleviate any concerns you may have. Talking with our team is free and easy.
If you have already started a debt settlement journey, it’s essential to follow through with all the program steps. Making your monthly deposits on time and allowing us to handle all communications with your creditors will ensure that you get your settlements as quickly as possible. It’s also crucial to communicate any lingering concerns with our team. We are here to help you feel confident about your financial future and move beyond debt.
*In October 2020, Accredited Debt Relief surveyed clients who had recently graduated from our debt settlement program in the past three months. The data pertaining to “recently graduated clients” cited in this blog is taken from this survey.