Avoid companies making big promises to settle your debt at all costs. Typically they are looking for a quick buck, and are really only in the business of filing debt paperwork and then consolidating debt—neither of which will put you on the right direction in and of themselves. After all is said and done, you may be paying exactly what you were before or just slightly less in a single monthly payment. If credit card companies refuse to work with you, contact a financial attorney or nonprofit credit-counseling agency.
This is what you should expect from credit counselors:
- Debt Counseling
A debt counselor will examine your finances and determine a course of action for you.
- Calculate a new budget
With you, the debt counselor will draw up a new monthly budget for you that will make you financially fit in the long-term and allow you to pay off your credit card debts.
- Determine program duration
The debt counselor, having exhaustively examined your financially situation, will give you a program term. This is the length of time you will be making payments on your debts. This term is usually 2-4 years.
- The Trust Account
A debt counselor will open a trust account for you and you will pay into that trust account. You will not pay lenders until you have accumulated a large enough sum to begin debt negotiations. The trust account is secured through the federal government, and you will receive monthly statements from it just like a bank.
Once you have built up enough savings, your debt counselor will start credit negotiations with the bank. These negotiations start when you have saved 50% of what you owe your lenders.
- Make a settlement offer
With your trust account savings, you now are in a position to negotiate with lenders. You can push for a lump sum payment settlement where banks get a percentage of the outstanding balance. Because you have hard cash stockpiled in a trust, banks may be more willing to settle for less.