If you have credit card debt problems and are considering using the services of a debt relief agency, you may be wondering what steps are involved in the process toward becoming debt free.
When you meet with a financial counselor, he or she will first determine if your credit card debt problems are eligible for one of their programs. To determine this, you will be asked for the most recent statements from your creditors. The counselor then analyzes this information to determine a reasonable monthly payment based on who you owe money to, the state you live in and the recent activity on your credit accounts. The monthly payment that is established is usually no more than two percent of the debt that you entered into the program.
You are then asked to set up a savings account to begin saving money for future debt settlements. Your payment, which includes the credit counseling agency’s fee, is deducted from your current checking or savings account on the same day each month. It is recommended that you close all credit accounts during the repayment process so that you avoid incurring new debt. It is also to your advantage if your accounts are marked as “closed per consumer request” rather than if a creditor closes them.
After you have saved some money in your separate savings account, the agency will contact creditors on your behalf in an attempt to reach a debt settlement with them. This is a process where the creditor accepts less than what is owed on the account, provided that it is paid off according to the amount that was agreed upon. This can be done in one lump sum or in a short time span, generally three to six months. If a creditor that was part of your original repayment plan accepts a debt settlement, they are removed from it and the account with them is considered paid in full.
When you accept third party help for repaying your debts, you need to be aware that it may adversly affect your credit, although not to the degree that filing for bankruptcy does.