After a few months, the company will typically go to the creditor and say, “I’m holding X dollars on behalf of your customer.
He doesn’t have the money to pay you, so you should take this amount as a settlement or you’ll end up with nothing.” If the creditor wants to get paid badly enough, it will take the money.
Basically, this happens because there can be a gap between when a payment was supposed to be made on your previous payment schedule and the payments you’re making now.
This only happens in the first month of the program.
And besides: You really don’t need to hire a debt settlement company to negotiate with your creditors.
Unless you have multiple accounts that you need to negotiate and you think the project is just too big to tackle on your own, you’re better off just calling your creditors directly.
Of course, if you have really excellent credit, then a few missed payments in the first month of your debt management program CAN make a difference and lower your scores.
If all goes well (and that’s a big if), you should be able to settle your debts for cents on the dollar.
A: Debt settlement companies work as a middleman between you and your creditor.
The best companies will charge a percentage, usually about 15%, of the amount of debt that they’re able to settle for you.
Others may charge 15% of the total debt you have when you enter the program.