Debt settlement companies can help eliminate debt.

• Eliminate extra fees and charges: The debt settlement company should be able to eliminate late payment fees and charges, if you have any. Any over-the-limit fees on credit cards or bills can also be greatly minimized, if not eliminated by way of settlement.
• Avoid legal actions or a lawsuit: Creditors or debt collectors can file a lawsuit against you, get a judgment order, garnish your paycheck or wages, or place lien on your property. You should be able to avoid such legal actions and lawsuits if you're in a settlement program.

How exactly does a debt settlement program work

Debt settlement companies will offer a settlement program to those who need help, and the companies will negotiate with your creditors or collection agencies. The companies will typically charge you an upfront fee for their services, but you can also find companies that you only need to pay if they save you money, so they in effect work on a contingency basis.

Whether you decide to use a credit card debt settlement program or try to use a program that settles other debts, such as personal loans, you will need to stop paying your creditors. Instead, any monthly payments you make should be sent to the settlement company, which will then deposit the funds into a trust account in your name.

After enough funds are accumulated in the trust account, debt settlement companies will proceed to negotiate with your creditors, collection agencies and attempt to stop all collection efforts. More on debt settlement programs.

Debts you can settle

You can settle medical bills, credit card debt and bills, store/gas cards, personal loans, payday loans etc. Debts that can’t be settled include alimony, tax debts, mortgages, child support, car loans and federally insured student loans.

How to settle medical debt

Find tips for how to do this. You do need to know that negotiating with a doctor or a hospital is usually easier than negotiating with other types of lenders. This is the case as medical care is a service and medical providers are more reluctant to sue you, and they are more willing to come to terms with you. Find ways to settle medical debt. More.

How much will I need to pay for settlement
Debt settlement companies typically charge about 25-35% of the debt balance that is eliminated under these programs. The fees are based on factors including :

• How much you will save by settlement
• How much debt you owe in total
• The total number of accounts you have

About how long will it take to settle my debts
No matter what type of debt or bill you are trying to settle, it usually will takes 2-4 years to complete the program. The exact amount of time it takes to complete the program will depend upon your total debt amount.

Can creditors sue after settlement?
No. After you compete negotiation and proceed with debt settlements, collectors and creditors can’t come after you for the balance and can’t sue you in most states. It is illegal in most states such as Texas, Arkansas, Georgia, Michigan, Washington etc.

What credit card issuers offer programs?
Many companies offer debt settlement programs to consumers who ask for them. Find examples of Bank of America debt settlement programs and how they are helping people across the country. Discover Card, JP Morgan Chase, and Citibank also make programs available to customers who need help. Or find a list of the programs from all the major issuers.

It is possible you may owe taxes on your debt
After you go through a debt settlement process, or if you go for credit card settlement, creditors will forgive a substantial percentage of what you owe them. This forgiven debt, which is then known as cancellation-of-debt (COD) income, may be taxable as per IRS guidelines. However, if the debt is settled because of a protest, you usually will not need to pay taxes.

How does debt settlement affect my credit score
When you stop paying creditors and accumulate funds to eventually settle the debt, some of your outstanding accounts may be charged off by the creditor. What this means is that the creditors may no longer consider your bills or debt as collectible. The creditor may even decide to sell off your account to a collection agency who will then try to collect the debt from you.

It is important to note that when the debt settlement companies start negotiating with your creditors and on your bills, the creditor at that point can’t send it to a collections agency and agree to accept a partial payment. The creditor will then report your account status to the various national credit bureaus, such that it appears on your next credit report as "Settled charge off".

And a “Settled charge off" will impact your credit score much less negatively than a bankruptcy filing on your credit report. So the bottom line is that a credit card debt settlement, or the settlement on any other bill or debt, will hurt your credit score for the time being. However, it is a shorter term impact as after the account is paid off in full, your credit scores will improve gradually if you keep making timely payments towards bills and other debts and liability.

Pros and Cons
Like all options and most things in life, there are various pros and cons in debt settlement, and various things to consider. Read more on some of these items. Or click here to compare a debt settlement program vs. debt consolidation options.

How can I repair my credit after debt settlement?
You have several options. They include :

• Open a savings account: Just go ahead and open a savings account and deposit cash and funds into it every month. Once you have enough funds in the account, you can then pay for unexpected expenses without having to use a credit card. Having a savings account will also allow you to take out a small loan with the savings account as your collateral for the loan. You can even use your savings account and get a secured credit card.
• Obtain a secured credit card: These type of credit cards are usually easily available to those with low or poor credit history. The intent of such unsecured cards is to help one improve his or her credit score.
• On-time payments: Pay all your rent, mortgage, and utility bills on time.
• Store/Gas cards: These types of cards are easy to qualify for. Once you get such cards, you need to use them every single month and pay more than the minimum payment on these cards. Try not to use more than 50% of the credit line on these cards at any one time. Once you are able to show a positive credit history through the store/gas cards, you can then apply for a higher credit line.
• Avoid unnecessary credit on your accounts: Never take out unnecessary credit, and do not increase  your debt-to-income ratio. Also, avoid taking out payday loans right after settlement, because in case you fail to repay a payday loan, that will hurt your credit scores even more and you'll end up in debt again.

The Bottom Line On Debt Settlement

Debt settlement programs are a solid option that you should explore and they can provide an easy way to get out of debt, including credit card debt, medical debt, and more. There are a few restrictions to credit card debt negotiations. You need to try to make sure that you deal with any of the debt settlement companies (BBB certified) that are reputable and that can negotiate to offer you the best deal and save you the most money.