Credit Card Debt Settlement FAQ's

Q: How does your credit card debt settlement program work?

A: When you enroll in our debt settlement program, we set you up on a monthly payment that is as much as 50% lower than your current minimum monthly payment. In the meantime, we negotiate with the credit companies to get them to agree to substantially lower the amount you owe. Once you have saved enough money and a creditor has agreed to a pay off (sometimes for as low as 40 to 50 percent of what is owed), we pay off the credit card company with a lump sum settlement.

Q: What is the process for getting started with your debt settlement service?

A: First, we ask that you fill out a form and contact one of our debt settlement experts. Then, depending on whether you fit our guidelines for someone who qualifies, your debt settlement expert may ask that you fax us your most recent statements from your credit card companies. We accept credit card statements that are no more than 60 days old, and this information is submitted to our underwriters to determine whether you are approved, what your monthly payment will be, and a firm estimate in terms of how long the program will last. If you like what you hear, then we'll email, fax, or mail you an agreement to sign and get back to us.

Q: Does your debt settlement service deal with debts other than credit cards?

A: Yes, we are also able to deal with medical bills, personal loans, repossessions, department store cards, gas cards, and accounts in collections. Since we negotiate with your creditors, we are unable to work with mortgages and cars because they will be able to recover the property in the event that you do not pay according to the terms they stipulate. Federal student loans also might as well be considered "secured debts" because the federal government may allow a student loan creditor to take your tax refund or levy your bank account without a judgment if you default. Since the bankruptcy law changes in 2005, even private student loans cannot be discharged in a bankruptcy in most cases. In sum, we only deal with debts where we will have sufficient leverage in order to procure the lowest debt settlement possible.

Q: Is there a minimum total debt amount in order to be eligible for your debt settlement program?

A: Yes, we only accept clients with more than $10,000 of debt, and each balance must be above $500 in order to be included in our credit card debt settlement program. We do make some exceptions depending on the client hardship and creditor, so feel free to contact one of our debt settlement experts to see if you are eligible.

Q: How will your credit card debt settlement program affect my credit?

A; The impact of credit card debt settlement on your credit depends a lot on what your credit is like now. If your credit is good now, then credit card debt settlement will have a negative effect on your credit. For consumers who have already fallen well behind, it is possible that credit card debt settlement may impact your credit positively by paying off the accounts. Your FICO credit score is primarily based on your credit history (35% of your score) and the amount you owe (30% of your score). In a credit card debt settlement program, your credit history is affected negatively and the amount you owe is affected positively.

Q: What are some signs that I may need credit card debt settlement?

A: You don't have any savings.

You make minimum payments on your credit cards.

You get calls from debt collectors.

You use credit cards for things you used to buy with cash, such as groceries, gas, or utilities bills.

Your credit card debt to income is at or near 20 percent.

You have more than three major credit cards.

You lie to your spouse or other family member about your spending or hide credit card statements from family members.

After you pay your credit card bill, you increase your balance by the same amount (or more) the following month.

You're at or near your credit limit on your credit cards.

You write a check hoping that you have enough time to make a deposit before it clears.

You're afraid to look at your statements each month.

On the same token, you have no idea how much you owe.

You take out cash advances on your credit card to pay other bills.

You've been denied credit.

You've bounced checks.

You lose sleep thinking about your debt.

Your debt is putting an added stress on your marriage.

If you lost your job, you would have no ability to make your bills.

Q: Can I keep an account out of my credit card debt settlement program?

A: Keeping an account out of your credit card debt settlement program may have an adverse effect on our ability to negotiate your other accounts. The credit card companies or collection agencies oftentimes will refuse negotiations on the grounds, "If the consumer could pay back that creditor, then they could have paid us back as well." It is for this reason that we advise you to include all credit card accounts with balances in excess of $1,000 in the program, and to only use any accounts not included in the program for emergency purposes.

Q: Should I close my credit card account after enrolling in your debt settlement service?

A: Yes, you should close your account. In general, it is far better for an account to read "account closed by consumer" on your credit report versus "account closed by credit grantor." It shows to any future lenders that you took the initiative in your situation, which is helpful.

Q: What is the difference between credit card debt settlement and credit counseling?

A: In a credit card debt settlement program, negotiators work on your behalf to reduce your balance by up to 50 percent. In a credit counseling program, counselors work on your behalf to reduce interest rates. The average credit card debt settlement program lasts between 1 and 3 years, whereas credit counseling services last for between 4 and 6 years. In general credit card debt settlement tends to be a more aggressive approach to debt elimination. Some consumers, however, may be better suited for credit counseling depending on their individual situation.

Q: What is the difference between credit card debt settlement and debt consolidation?

A: There are two types of debt consolidation: secured and unsecured debt consolidation. With secured debt consolidation, a consumer gets a loan that is collateralized by a home or vehicle to pay off their credit card debt, and then pays back the loan at lower interest since it is secured by property. With an unsecured debt consolidation loan, a consumer gets a loan from a bank, presumably at a marginally lower interest rate, to pay off their credit card debt. Credit card debt settlement does not involve lending, but rather negotiating with credit card companies to reduce the amount you owe.

Q: If credit card debt settlement is not debt consolidation, will I have to make more than one monthly payment each month?

A: No, you will still only have to make one payment in our program.

Q: Can I get a home equity loan to fund my credit card debt settlement program?

A: Yes, this is encouraged if possible. In these cases, a client gets a home equity loan or refinances their home, we negotiate with the credit card companies, and once they agree to a settlement for less than the balance owed, we use the money from the 2nd mortgage or refinancing to settle all the credit cards. This process takes as little as 3 to 9 months to complete, and it is recommended, although we understand if a client does not have the means or the desire to pursue this avenue of credit card debt settlement.

Q: Is credit card debt settlement the same as bankruptcy?

A: No, credit card debt settlement is very different from bankruptcy. For starters, bankruptcy has far wider implications for your credit versus credit card debt settlement. Bankruptcy is a suitable alternative for consumers who do not have any income or are seeking debt relief for secured debts like mortgages and car loans. In a Chapter 7 bankruptcy, the court orders a debtor to liquidate all of their non-exempt property and a trustee pays the creditors back with the proceeds from their sale. In a Chapter 13 bankruptcy, the court orders a debtor to turn over all their disposable income for 5 years.

Q: Can I be sued in a credit card debt settlement program?

A: Yes, a credit card company is reserved the right to pursue a client in court to collect the full debt amount. For the most part, this is a last resort for credit card companies after they have exhausted every collection method possible, and although it is impossible to definitely predict who will be the target of legal action by a creditor, we underwrite our cases so as to minimize the likelihood that we enroll someone who will likely be the target of legal action. Since credit card companies understand that seeking legal remedies may result in a client filing bankruptcy, they oftentimes prefer to accept settlements instead of legal action.

Q: What happens if I am sued while working with your debt settlement company?

In some cases, an impending lawsuit results in a settlement that is higher than the amount originally estimated. In other instances, a lawsuit results in what is called a stipulated agreement with the creditor, where they enter a judgment against the client in court, but they agree to a payment plan to resolve the debt. After the debt is paid, any legal right to the debt is dropped. In other instances, the creditor pursues legal action, gets a judgment and then does nothing else to collect the debt. In the worst case scenario, a creditor will attempt a wage garnishment or put a lien on a clients' property to collect the debt. Since Franklin Debt Relief is not a law firm, we cannot represent you in court or give you legal advice.

Q: How much does your credit card debt settlement program cost?

A: Our fees are spread out of the first 18 to 19 months of the program, and in total they amount to 15 percent of the amount you owe. Since we can potentially reduce your total debt amount by up to 60 percent, the total cost of the program (what you pay us and your creditors) may be as low as 55 percent of what you owe, which makes our debt settlement service the cheapest alternative other than bankruptcy.

Q: Who qualifies for your credit card debt settlement program?

A: Qualification is based primarily on which credit cards you owe, the state you live in, and your recent account activity. We also seek clients who are in a state of genuine financial hardship. Being in a state of hardship is broadly defined and deals with a number of financially catastrophic events, from loss of employment and divorce, to overwhelming medical bills or anything else that may have caused a consumer to accumulate high credit card balances and unable to pay them back.

Q: Can you get the collections calls to stop?

No. The first action we take upon your enrollment is to take steps to minimize any collections calls. There are numerous state and federal laws that protect consumers from harassing phone calls from collections agencies. We also ask that you change your phone number and address with the credit card companies to Franklin Debt Relief's phone number and address. While this may serve to reduce some phone calls, it is still inevitable that you will get creditor calls.

Q: What laws can you take advantage of to reduce creditor calls?

A: Debt collectors are bound by the Fair Debt Collections Practices Act (FDCPA). The FDCPA specifically states that a debt collector is obligated to contact third-parties with a Power of Attorney instead of the debtor.

Q: Can I apply for other credit while enrolled in your debt settlement program?

A: No, you cannot apply for other credit while enrolled because it could affect our ability to negotiate with the credit card companies. In some cases they will say, "If this client was having trouble with his or her debt, why have they applied for other credit cards after they enrolled in your program?" Moreover, the goal of our credit card debt settlement service is to help our clients become debt free, and applying for other credit cards while you were enrolled would defeat the original purpose of the program.

Q: Are there any tax implications associated with enrolling in a credit card debt settlement program?

A: Yes, it is possible that you may be taxed on the savings related to our settling of your credit card debt. However, for clients who are technically insolvent, then filing IRS form 982 may exempt you from paying taxes on the savings from settling. The IRS defines insolvency as financial state in which someone owes more (liabilities) than the value of their assets. Many of our clients fall under this category, but you should consult a tax attorney for advice regarding your situation. Secondly, even if you are taxed on the savings from debt settlement, you may still save a lot of money. Remember, you are only taxed on a percentage of the savings. That is, if our debt settlement program saved you $2000 off one of your credit cards and you had to pay 25 percent of that amount to the IRS ($500), then you still saved approximately $1500. Assuming the debt was $4,000 and our fee was $600, the total savings is still $900. Unfortunately, since we are not tax specialists, however, we cannot offer advice in this area.

Q: What are my responsibilities throughout the credit card debt settlement program?

A: Your main responsibilities are to be truthful and to make your monthly payment as planned. Without ample savings we will be unable to obtain settlements from the credit card companies. If you will have trouble making your monthly payment, then it is important that you notify us 5 business days in advance, so you do not get charged for having insufficient funds. Moreover, it is important to stay in touch with us, so we always have quick and easy access to you during the negotiation process in the event that we need you to supply our debt settlement experts with any important information regarding your credit card accounts.

Q: Can I include accounts into the debt settlement program that have authorized users or co-applicants?

A: Before enrolling any credit cards with co-applicants, we ask that the co-applicant sign a waiver acknowledging that they are allowing the account to be included in our debt settlement program. For authorized users, we advise that you ask the credit card company to remove the person from the account prior to enrollment. If this does not work, we will need the authorized user to sign a waiver acknowledging that they allow the account to be included in the debt settlement program.

Q: What is the difference between credit card debt settlement and credit repair?

A: Credit repair involves removing inaccurate or unverifiable information off your credit report. Clients of our credit card debt settlement program will oftentimes use credit repair after their debts are eliminated to more rapidly increase their credit scores. Unlike debt settlement, however, credit repair cannot eliminate debts that you actually owe.

Q: Do you make payments to each of my credit cards every month?

A: No, we negotiate with your credit card companies to lower the amount that you owe. Once you have saved enough money and one of the credit card companies has agreed to lower the amount you owe, we pay them off with a lump sum settlement of your debt.

Q: How do you decide which credit card companies get paid first?

A: We prefer to settle with the most aggressive creditors first. Assuming all things are equal, we will settle based on which creditor is offering the best settlement. If each creditor is offering similar settlements, we usually try to negotiate the smallest account.

Q: Will I still be eligible for bankruptcy if I do debt settlement, but lose my job or income down the road?

A: Yes, bankruptcy is still available. However, it is important to note that any money we spent in your credit card debt settlement program up until then will gone forever. On the flip side, since you are always in complete control of your savings account, any monies still in reserve there will be returned to you.

Q: Is it possible that a creditor will refuse to settle?

A: Creditors rarely refuse to accept settlements. They may ask for more money than what's available or grow impatient before funds are saved to settle, and although a creditor flatly refusing any settlement is possible, it's unlikely. For the most part, when a credit card company turns down a settlement offer, we wait for the account status to change or wait until more funds are built up, and then begin negotiations again until it is settled. In other words, a credit card company may turn down a settlement offer for 30 percent of what is owed, but perhaps they will accept a settlement for 40 percent in 3 months.

Q: How does your debt settlement company come up with an estimate of how much I will have to pay the credit card companies?

A: Our estimate is based almost entirely on who the credit card company is. Each creditor has a different internal policy regarding debt settlement, so each one typically accepts settlements within a certain range. The vast majority of creditors will accept settlements in the 40 to 60 percent range during a specific period in the collections process. Debt settlement is a lot about timing and planning, and it comes down to having the right amount of money at the right time in order to obtain the ideal settlement.

Q: Do I have any incentive to pay these accounts off faster?

A: Absolutely. By paying off the debts faster your credit score will be able to improve more quickly since you'll be done with the program earlier. That is, if you are in 24 month program, you can start restoring your credit much faster than someone in a 36 months program. Moreover, shorter debt settlement programs are even less likely to be in danger of legal action by the creditor.

Q: Are there any prepayment penalties associated with your debt settlement program?

A: Not at all, we encourage all of our clients to pay as much as possible into their credit card debt settlement plan.

Q: Can I pay more some months and less other months in your debt settlement program?

A: Yes, we allow a lot of flexibility in terms of your monthly payment, although we do not allow you to pay less than a certain amount every month. A lot of our clients will use their tax refunds to fund their program and get out of debt even faster than what we estimate. You are informed of the minimum monthly payment before enrollment into the program, and if you are having difficulty making a payment one month, please feel free to call our debt settlement customer service to discuss your options.

Q: What is the longest debt settlement program possible?

A: For the most part, we keep our clients in debt settlement programs that last no more than 3 years, oftentimes shorter. Because of highly favorable debtor laws, however, we are able to extend the program length for clients from certain states and certain income types (social security, disability, retirement, etc.) for up to 42 months. It should be noted that these cases are extremely rare.

Q: What states have highly favorable debtor laws and are eligible for longer debt settlement programs?

A: Texas, Florida, Arkansas, Iowa, Pennsylvania, South Dakota, and Oklahoma are considered "debtor-friendly", and clients from these states may be eligible for longer debt settlement plans.

Q: Is debt settlement legal?

A: Absolutely. The credit card debt settlement industry was originally started by lawyers representing wealthy clients who did not want to file bankruptcy.

Q: How will debt settlement affect my spouse's credit rating?

A: As long as the debts are in your name only, your spouse's credit rating may not be affected by debt settlement. If you spouse is an authorized user, you can request that they be taken off the account prior to enrollment in order to ensure that they are not affected by our program. However, if you live in a community property state (Texas, Arizona, California, Idaho, Louisiana, Washington, Nevada, New Mexico, or Wisconsin), then the credit card company may treat your debt as your spouse's debt for collections purposes.

Q: Will my accounts be sent to collections while I am enrolled in your debt settlement service?

A: Depending on your program length, your accounts may be sent to collections while enrolled in our debt settlement plan. Keep in mind: usually accounts are in fact sent to collections during the course of our program. This may be favorable for two reasons: 1) collections agencies typically purchase your account from the original credit for pennies on the dollar, which means we are able to procure very low settlements from collections agencies; and 2) collections agencies are bound by a federal law called the FDCPA, which our debt settlement experts may take advantage of to potentially minimize any annoying phone calls.

Q: Is it moral to settle my debts?

A: For starters, keep in mind that many consumers simply turn to bankruptcy. With debt settlement, you pay back what you can afford, and in fact, debt settlement is widely considered to be an honorable alternative to bankruptcy.