Debt Questions and Answers

Debt settlement, debt reduction, debt negotiation… they all mean the same thing. If there are three different names for this approach to debt relief, you can rest assured that there are many other questions we can answer when it comes to this simple, direct approach to reducing and eliminating your debt. Please reach out if you don’t see your question below.
Will debt settlement affect your credit?
Yes. However, if you’re a typical client of ours, the impact is not going to be as negative because debt settlement only drops your score between 80 and 100 points.

So, ask yourself: What is your credit doing for you now? Typically, credit is something that you need to get more debt. And that’s not what we want for our clients. We want to get them out of debt and free up monthly cash flow.

How will this hurt my credit score?
So, let’s begin this answer by asking, “What is your credit score today?” Obviously, if you are a top borrower with a credit score of 750-850, debt settlement is going to have a negative effect on your credit.

However, our typical client has a credit score of about 620. And many times, we consider between 600 and 660 the worst credit score that you can have. That’s because this score allows you to get approved for credit cards that are charging the highest interest rates—ranging from 25 to 40%—or it’ll get you something like a payday loan.

What if I get sued?
DebtBlue refers to creditors that threaten legal action as a “priority account.” Think of it as a creditor trying to skip the line… like somebody’s getting a Fast Pass at an amusement park, saying “Hey, I don’t want to wait in line… I want to go straight to the front, so I’m going to take a legal action.”

Creditors know that a legal action–or a perceived legal action–that threatens you or puts you into a fear-based mindset, is a tactic that makes a client want to pay that creditor faster.

So, what happens if you receive a summons? First call your DebtBlue Client Success team and second, forward the notice to DebtBlue and we will take it from there. We are very successful at settling our priority accounts and have Sr. Negotiators assigned specifically to these accounts.

Typically less than 1% of all accounts that are enrolled will experience an aggressive legal action. That is why we have the Veritas and Fortress Legal Plans: to add confidence for our clients in these unique and rare situations.

Will this impact my taxes?
The short answer is no. However, can you be taxed for the forgiveness of debt? Yes. And that’s done with a Form 1099.

The IRS views debt forgiveness like this: If somebody writes off a portion of your debt, then you have to declare that as income.

You have to declare that as 1099 income because you did not pay taxes on that income. However, the most common way that you pay taxes under a 1099 under debt forgiveness is if you are in a solvent status. Solvent status means you have more assets than liabilities. Our clients are typically–even when they graduate–still considered to be in a neutral status, which means they don’t have any more assets than they have liabilities. Sometimes they’re in a negative liability situation, which is called insolvency.

So, will this impact your taxes? No, it will not impact your taxes. Will you get a 1099? Yes, you will. You’ll get that from your creditors.

Will you have to pay taxes on that? You’ll need to consult a CPA, but the vast majority of our clients do not have to pay any taxes for the debt that has been forgiven.

How do I handle creditor calls?
This is one of the most negative effects of a debt settlement program: creditor calls.

Anytime you owe somebody money, they have the right to call you. However, there are many laws and statutes around how creditors can collect and when they can make those phone calls. This includes what time, what they can ask on that call, and who they can contact about your accounts.

The great thing about handling creditor calls… is that we tell you just to forward them to us. DebtBlue has relationships directly with the majority of creditors and collection agencies, and many times we can reduce or eliminate those calls on your behalf.

If you’re active in our debt settlement program, creditors will usually stop collection efforts because they know you are saving with DebtBlue to pay that debt.

In other situations, we use Veritas or Fortress Legal Plan to make sure that creditors and collection agencies don’t violate your rights through the Fair Debt Collection Practices Act (FDCPA).

If there is a violation, Veritas or Fortress will take legal action against them. And, in some cases, our clients receive a significant amount of money if their rights are violated. So, make sure you work with our client success team if creditor calls become overbearing.  Let’s make sure that we’re using all your legal remedies to reduce creditor calls.

How long is this going to take?
Our typical program length is about 32 months, and our typical client will graduate about a month or two early from their program. Actual dates depend on whether you have had any changes to your program or if anything has changed with your participation in depositing funds in your special purpose savings account.

So the most important part of being successful in your debt reduction program, is staying committed and making your scheduled deposits.

Why aren't you making payments to my creditors?
You need to understand that Debt Settlement is not a loan program.. And the only way a creditor is going to be willing to take less than what they are owed or reduce and eliminate part of the principal, is this: The creditor must have a reason to do so.

If you’re continuing to make payments, there’s no reason or motivation for a creditor to take less than the principal balance. If you can afford to make your minimum monthly payments or you can afford to pay your debt, then you probably didn’t qualify for our debt settlement program.

Debt settlement is only for those individuals who are in a hardship, and they simply cannot continue to pay their minimum monthly payments or afford to pay their debt back. We do not make payments to creditors until we have made a successful settlement with your creditor and then with your permission a payment will be made from your special purpose savings account directly to your account holder.

Are debt settlement programs legitimate?
Simply put: Yes. Debt settlement companies are required to be licensed, bonded and registered in every state in which they work and are also fully federally regulated.
 
This is how you can tell whether a debt settlement company is legitimate or not: If a debt settlement company charges you fees upfront, it is not a legitimate settlement company.

That’s because federal statutes require that services have to be rendered before any fees are collected. Another way to find out if the company you are working with is legit, is if they are a member of the American Fair Credit Council. The AFCC audits all of its members annually to ensure they are following all state and federal rules and laws.  

So, is debt settlement legit? Yes. Debt settlement companies are not only federally regulated—they are also subject to state licenses.

Can I negotiate with creditors myself?
Absolutely. And many of our clients have reached settlements directly with creditors. However, we compare this with representing yourself in court. It’s highly advisable that you have a lawyer with you. The one that thing we stress when it comes to doing debt settlement on your own is this: You have to make sure that you have the correct documentation.

The correct documentation says that your accounts have been settled in full, and there’s no way that you’re going to owe anybody else in the future for this debt. Also, when you’re settling accounts, typically you’re settling one account at a time.

When DebtBlue settles accounts, we’re settling multiple accounts at a time. This gives you the benefit of a volume discount. For instance, DebtBlue may offer to settle 100 accounts with a particular account holder.

These hundred accounts may total $50,000. And of this $50,000, DebtBlue may offer $20,000 to settle immediately.

In doing so, we can get much better settlements for our clients. In other words, DebtBlue is like Costco for the creditors and you WIN!

What fees are included in the program?
Our fee is typically roughly 25% of the debt that you enrolled at the time you enrolled. Remember: no fees are collected up front. We don’t collect anything until we render service and until the payment is made to the creditor, then DebtBlue will collect its fee but only for that settled account.
 
In addition to the fee that goes to DebtBlue, there’s the fee that you would pay if you decide to sign up for the Veritas Legal Plan or the Fortress Legal Plan, which is $39.95 a month. There’s also a fee that’s less than $10 per month for your deposit account. There are some other ancillary fees—like if DebtBlue does a check by phone to a creditor to make a payment. These banking fees are not charged by DebtBlue; they are charged by your special purpose account.
Why does the program work best for people over $10,000?
You don’t have to have $10,000 in debt to enroll. We do accept some clients with debts below that figure. However, you must have enough debt for debt settlement to actually be a benefit. Let’s look at it this way:

If you enroll $10,000 into a debt settlement program, after your fees and after the accounts age… by the time that you complete the program you’ll probably only experience a small savings. However, if you have $20,000 enrolled in a debt settlement program, your savings are going to be anywhere from $6,000 to $8,000. Same thing if you are enrolling $30,000… You’ll likely end up saving 9, 10, or 11 thousand dollars.

So, there’s a greater benefit when you have a larger amount of debt enrolled. Also, it comes down to the Time Value of Money. If you had $10,000 in debt today, and I told you that you can pay that debt off for only $7,000 or $7,500, you’d probably reason that $2,500-$3000 savings is not worth the hassle.

However, if that $7,500 didn’t have to be paid back immediately but could be paid over 30 months, now the time value of money changes things. That’s because there’s no interest and no penalties being paid on the debt, and you can make that payment over a 30-month period. NOW the program becomes much more palatable. So, it is not only the fact that you’re saving on that $10,000 balance, which will be reduced… But it’s the amount of time that you can to pay it out.

The reason why we have that cutoff at $10,000 is for the benefit of the client.

What are my options for getting out of Credit Card Debt?
Paying it off, bankruptcy, credit counseling, home equity loan, debt consolidation and debt settlement.
What is Unsecured Debt?
Unsecured debt is debt that is not secured by an asset like a house, land or car. Unsecured debt is the type of debt where creditors did not require collateral before giving you access to the money. This typically includes credit cards, medical bills, department store cards and utility bills.
How did my credit card debt grow so fast?
Credit card companies are experts at helping the amount of your credit card debt increase with tactics like minimum monthly payments, low introductory rate offers that balloon into very high interest rates, late fees and penalties. When you make minimum payments, the interest and fees add up quickly. Before you know it, you owe more than you originally charged on your card.

Little known fact: Young Charles Dickens, who wrote “A Christmas Carol,” “Oliver Twist” and “Great Expectations,” was sent to work at a boot blacking factory at the age of 12 because his father was sent to Debtors Prison.

Can credit card companies take my house if I fail to pay?
No. Credit card companies are not allowed to take your house to pay off your debts. However, if you have taken out a home equity loan and you fail to pay or default on your payment, then lenders could foreclose on your home. If you have equity in your home, then the lender may want to get that equity back to pay off the loan. They usually don’t want to do this, but it is possible.
Can credit card companies increase my interest rate?

Yes. If you are more than 60 days late on a credit card payment, then the issuer can impose a penalty APR as high as 29%. If this happens the issuer is permitted to apply the 29% APR to your outstanding balances. In most cases, the Credit Card Act prevents credit card companies from raising the interest rate on the balance you owe; however, in the case of a payment more than 60 days late they can. They can also increase your interest rate if you have had your card for at least a year. They are required to give you a 45-day advance notice. If your credit score has gone down significantly, then the issuer can also choose to raise your rate.

Can a credit card company reduce my credit limit?
Yes. Without notice unless it’s going to create an over the limit fee and penalty.
What does FICO stand for?
he name FICO comes from the company that developed the score. It comes from their original name, The Fair Isaac Company. It is not a credit reporting agency. It developed this score so lenders could understand their financial risk for individuals they are considering lending to.
What affects my credit score?
Your FICO score is affected by five factors that are weighted based on certain criteria.

Payment history: 35%
Amounts owed: 30%
Length of credit history: 15%
Credit Mix: 10%
New Credit: 10%

How do I get my FREE credit report?

You are entitled to one free copy of your credit report every 12 months. You can get a free report from each of the credit reporting companies. The only authorized website for getting your free report is annualcreditreport.com. Or you can call and request your report at (877) 322-8228. This report is absolutely free from Equifax, Experian and Transunion. Be careful when signing up for services that charge you for these. It is truly a free report. It’s estimated that 20% of consumers have an error on their credit report that can bring down their credit score. So order your report and see if it’s accurate.

How do I find free money?

You can find out if someone owes you money for free at www.missingmoney.com. Missingmoney.com is a database of governmental unclaimed property records. You might find money from things like:

Bank accounts and safe deposit boxes
CDs and trust funds
Stocks, mutual funds and dividends
Uncashed checks and wages
Utility deposits
Escrow accounts
This site will connect you to the unclaimed property from participating states and provinces. Searches and claiming are always free on this site. The site is updated weekly. You search by your name and it quickly pulls up any money owed to you.

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