After you’ve been enrolled in a debt settlement program for a few months, you might check your credit card statements to see if your credit card company has received any payments on your behalf. If you’ve never done this before, you were probably shocked to see that most likely no payments had been made and not only were you months past due, your balance probably went up because of all the fees and interest. Don’t worry, it’s all part of the usual debt settlement process. This is typically necessary for successful debt settlement negotiations.
Your debt settlement firm should explain how debt settlement works and maybe they’ve tried, but they didn’t do a good job. So, here’s a rundown.
Deposits and Settlement Fees
Most likely, the debt settlement firm has been receiving your monthly payments and putting them aside in an account. If you’ve been paying by check, you can check with your bank to make sure the checks have actually cleared. Some debt settlement companies may have taken their fee in advance of settling your debt, but other companies won’t collect their fee until they’ve actually settled a debt. In fact, a new Federal law only allows certain debt settlement companies to collect their fee prior to settling your debt. Otherwise, you don’t pay anything to the debt settlement company until the debt has been settled.
Briefly: How Settlement Typically Works
Back to your monthly payments: Each month, the debt settlement company receives your payment and puts it into an account. The goal is for this account to grow until it’s large enough to make a settlement offer. Most creditors and debt collectors will only accept a settlement offer if it’s paid in one lump-sum. So, that’s why your monthly payments just sit in an account.
If you were to settle your debts on your own, you should use a similar approach. Each month, you’d make monthly deposits into a separate checking account and when the account balance grew large enough to make a reasonable settlement offer, then you could make an offer.
Your Access to Settlement Funds
Your funds to the debt settlement firm for settlement should be placed in an account with a bank that’s FDIC-insured. Your name should be the only name on the account and you should be able to access it if you choose. So, if you need to confirm that monthly deposits have indeed been going to this designated settlement account, you can simply check the balance of this account.
You would have the right to withdraw money from this account at anytime without receiving a penalty from the settlement firm. (The bank may have its own withdrawal fees.) So, if you’re unhappy with the debt settlement progress, you can do something else with the money in this account.
It’s important to note, though, that debt settlement usually does take some time. Depending on how much money you’re designating for your settlement account, it could take several months before you have enough to make a reasonable settlement offer. This is a process that could include a lot of waiting, but if you have the patience to stick it out, you could see success.