what is debt settlement

Credit card debt is a major financial problem in the United States. Unfortunately, many consumers are not receiving the help they need and deserve because of a misunderstanding of how debt settlement works. Others are jumping into a debt settlement when there are other options available that are less damaging to their credit.

Don’t allow baseless debt settlement myths to limit your debt relief options.

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Nobody/Everybody qualifies for a debt settlement

This is a tricky one because both variations of the myth are misleading and damaging to borrowers.

True. Not everyone is going to qualify for a credit card debt settlement. And even those who qualify for a debt settlement may not receive the pennies on the dollar reductions they would like. However, that doesn’t mean you can’t qualify for a substantial debt reduction. Get a free consultation with a professional debt settlement firms and ask whether a debt settlement is a good option for you. Debt relief experts can help you determine whether your financial situation qualifies you for a debt settlement.

These statistics illustrate the benefits of debt settlement programs. They are part of a 2015 study commissioned by the American Fair Credit Council that analyzed the outcomes of over 1.9 million consumer accounts enrolled in debt settlement programs between January 1, 2006, and March 31, 2015 (source).

  • The average settlement of an account enrolled in a debt settlement program is 48% of the balance owed.
  • Over half the consumer that enroll in a debt settlement program settle accounts within the first four months.
  • Debt reduction consistently saved consumers between $2.75 and $3.13 for every $1 paid in fees over the life of a debt settlement program.

As you can see, there are many credit card users that are entitled to a fair debt settlement.

Only poor people apply for debt settlements

Credit card debt is a problem for all consumers but particularly for middle-class borrowers. After all, middle-class borrowers are more likely to have a credit card. Typically, they also have larger lines of credit than consumers in lower income brackets. Federal regulations restrict credit card issuers from increasing the credit limit of an account unless they can determine the consumer has the income or assets to make minimum payments (source). According to the latest survey of consumer finances by the Federal Reserve, the average debt burden among members of the middle class — those with earnings within the middle three-fifths of the total population — is 122 percent of their annual income (source).

Negotiating for a debt settlement is unethical

Banks and credit card companies like to portray debt settlements as an unethical debt relief tool that shows a lack of character. That is unfair. Of course, there are people who use credit irresponsibly or even fraudulently, but most people who negotiate a debt settlement have fallen into difficult times because of circumstances outside of their control, such as medical bills, family problems, and unemployment.

If you are looking for someone to blame – and there is plenty of blame to go around – the credit industry and the legislative branch have a lot to answer for. There is a reason credit card use, and, therefore, debt exploded in the 1980s. Spoiler alert. It wasn’t the simply irresistible fashion industry. A 1978 ruling by the Supreme Court ended customer interest rate limits and the federal usury law. The deregulation of the industry allowed lenders to charge high interest rates and penalty fees that turned credit cards into cash cows for banks. Now, only nonprofit credit unions have an interest rate ceiling of 15 percent.

Debt consolidation loans, credit counseling, and debt settlements are all the same

The three main debt relief options for people with large debt problems: credit counseling, debt consolidation, and debt settlements. They are completely different from each other. They all have their pros and cons. A debt relief expert can help you determine which option is best for your financial circumstances.

Here is a brief summary of the pros and cons of each one:

  • Credit counseling will probably protect your credit score, but you may end up extending the term of your loan and paying more in interest. Plus, its success rate is extremely low. Most people drop out before the debt is repaid.
  • Debt consolidations require borrowers to either have excellent credit or to secure the loan with a home or another valuable asset. This method can reduce your monthly payments and protect your credit. However, it can also be expensive, take years to repay, and can put your home at risk.
  • Debt settlement will have a negative effect on your credit and won’t necessarily stop collection actions while you’re enrolled in the program. However, it gives borrowers who can only afford minimum payments to get out of debt faster and save money on interest and fees.

Credit reports show the unpaid balance on debt settlements

You may have heard that delinquent accounts show on your credit report for up to 7 years. This is true. The credit report also shows the balance you owe, for lenders, employers, and landlords to see. The same CANNOT be said about debt settlements.

If a creditor agrees to a debt settlement, you no longer owe the remaining or “forgiven” balance. That is, after all, the whole point of a debt settlement: to provide people with overwhelming debt a clean slate. When lenders report the debt settlement to credit bureaus, the debt balance goes down to zero. Creditors may add a note along the lines of “settled for less than full balance.” Even the content of this note is up for negotiation during the settlement. Although there are no guarantees, you can request your creditor to omit it as part of your debt settlement negotiation.

Warning: There is a scenario where this myth does prove to be true. If as part of your debt settlement you agree to be liable for the deficiency balance, you will owe the difference between the full balance and the amount you pay as part of the offer in compromise. You should never agree to this. No reputable debt settlement company will ever allow you to agree to this. It is usually a trick debt collectors and unscrupulous creditors pull on people who negotiate their own debt settlement.

What should you do next?

Now you can debunk some of the worst debt settlement myths, find out what a debt settlement can do for you. Debt settlements are a powerful debt relief tool, but they are not a silver bullet for every financial problem.

If you are facing overwhelming debt and you can barely afford to make minimum payments on unsecured debts, such as credit card debt, medical bills, and personal loans, a debt settlement program may be a smart move for you.

First, read this guide on 10 questions you should ask a debt settlement company before you commit to a debt settlement program.

Once you’re ready, click here to get a free consultation with a debt relief expert. Educating yourself about your debt relief options won’t cost you a dime or hurt your credit score.

Get a Free Consultation

Money may not buy you happiness, but having plenty of money can sure make your life easier.

One way to make more money is to gain wisdom from people who already have it. Fortunately, you can obtain access to much of that insight without ever leaving your house. You can read newsletters, watch financial shows on TV – and follow the Twitter feeds of some of the richest people in the world.

Listed below are some of the richest folks on Twitter (in no particular order), tweeting out their life lessons, tips and experiences for us. Remember, these are the best of the best out there. Lap up all the wisdom you can – follow them on Twitter!

1) Warren Buffett @WarrenBuffett

Net Worth: $62.7 billion     Twitter Followers: 898 k

WB

OK, so he’s only posted 5 tweets so far, but the man knows how to make money. Which is why he has 898,000 followers breathlessly awaiting his next 140-character pearl of wisdom.

2) Bill Gates @BillGates

Net Worth: $82 billion     Twitter Followers: 18.1 million

bg

The former Microsoft head was an early Twitter adapter, posting his first tweets in 2009. He’s only a *bit* more prolific than Warren Buffet, having posted just over 1,400 Tweets as of October 2014. But Bill has over 18 million followers – perhaps you should join them.

3) Elon Musk @elonmusk

Net Worth: $11.7 billion     Twitter Followers: 1.19 million

EM

The brains behind Tesla, the all-electric car that made electric cars sexy, joined Twitter in 2009, posting just over 1,000 Tweets as of October 2014. He posts updates on all things Tesla and tech to more than 1 million eager followers.

4) Mike Bloomberg @MikeBloomberg

Net Worth: $33 billion     Twitter Followers: 632 k

MB

As in the former NYC mayor and the founder of Bloomberg LP. He was also an early Twitter adapter, joining in 2008. He’s fairly prolific too, posting just over 7,700 tweets as of October 2014 and has 632,000 followers.

5) Michael Dell @MichaelDell

Net Worth: $15.9 billion     Twitter Followers:    864 k

MD

As in Dell computers. Another billionaire, Dell joined Twitter in 2009. He’s posted just over 2,300 Tweets as of October 2014 and has 864,000 followers. You should consider joining them.

6) Donald Trump @realDonaldTrump

Net Worth: $4 billion     Twitter Followers: 2.73 million

DT

Whether you love him or you hate him, you have to admit the man knows how to work deals. (He wrote the book on the subject: The Art of the Deal). The real estate tycoon joined Twitter in 2009 and has been Tweeting like a man possessed – with more than 19,000 Tweets as of October 2014. He also has 2.71 million followers who just can’t get enough.

7) Oprah Winfrey @Oprah

Net Worth: $2.9 billion     Twitter Followers: 25.7 million

OW

The former talk show queen is one of an elite group who only needs one name. She joined Twitter in 2009 and has posted an impressive 9,700+ Tweets as of October 2014. A member of the billionaire girls club, Oprah has more than 25.7 million devoted followers on Twitter.

8) Sheryl Sandberg @sherylsandberg

Net Worth: $1.1 billion     Twitter Followers: 148 k

SS

The Facebook exec and author of the provocative book Lean In joined Twitter in 2009. She’s only posted 17 Tweets as of October 2014, but surely as a social media maven she’s bound to pick up again. Her 148,000 followers sure hope so.

9) Richard Branson @richardbranson

Net Worth: $5 billion     Twitter Followers: 4.6 million

RB

More than the CEO of Virgin, Branson is a genuine adventurer. He joined Twitter way back in 2007 and has posted nearly 6,500 tweets as of October 2014. His Twitter feed is filled with interesting stuff ranging from links to his blog to investment opportunity tips. No wonder he has more than 4.6 million followers. He should be a fun one to follow.

10) Guy Kawasaki @GuyKawasaki

Net Worth: $30 million     Twitter Followers: 1.43 million

GK

The former chief evangelist of Apple was also a Twitter pioneer, launching his account in 2007. He’s a prolific Tweeter with more than 132,000 Tweets as of October 2014. His 1.43 million followers appreciate every post.

11) Seth Godin @ThisIsSethsBlog

Net Worth: $30 million     Twitter Followers: 417 k

SG

The founder of Squidoo is a respected blogger. He joined Twitter in 2008 and has posted more than 2400 Tweets as of October 2014. His Tweets include business trends, entrepreneurial ventures and marketing news. More than 417,000 followers can’t be wrong about the value of his Twitter feed for entrepreneurs.

12) Alan Sugar @Lord_Sugar

Net Worth: $1.14 billion     Twitter Followers: 3.65 million

AS

If you’re thinking “who?” then it’s time to get hip to the billionaire businessman and proprietor of the UK version of The Apprentice, who has been on Twitter since 2010, racking up more than 24,000 Tweets as of October 2014. Sugar posts job openings and info about his various ventures which are closely followed by 3.65 million followers.

13) Suze Orman @SuzeOrmanShow

Net Worth: $35 million     Twitter Followers: 1.55 million

SO

On her long-running TV show, Orman dispenses financial advice with a healthy dose of humor and humanity. The millionaire financial guru joined Twitter in 2009, racking up more than 24,000 Tweets as of October 2014. Her 1.55 million followers eagerly await every update.

14) Russell Simmons @UncleRUSH

Net Worth: $350 million     Twitter Followers: 3.31 million

RS

The hip-hop legend has a net worth of more than $350 million and more than 3 million followers on Twitter. He’s been Tweeting since 2009, dishing politics and life along with celebrity happenings with more than 50,000 Tweets as of October 2014.

15) Jerry Brown @JerryBrownGov

Net Worth: $4 million     Twitter Followers: 1.05 million

JB

The once before and now again governor of California has an estimated net worth of $4 million. While that’s pocket change to people like Warren Buffet, his Twitter feed features insider updates on California politics and world affairs. Brown joined Twitter in 2009 and has racked up more than 1800 Tweets as of October 2014, and more than 1 million followers.

16) Marcus Lemonis @marcuslemonis

Net Worth: $2 billion     Twitter Followers: 225 k

ML

The star of the reality show The Profit is reportedly worth more than $2 billion. Lemonis joined Twitter in 2009 and has racked up more than 8,700 Tweets as of October 2014, plus 200,000+ followers.

17) Larry Ellison @LarryEllison

Net Worth: $46 billion     Twitter Followers: 50.6 k

LE

He joined Twitter in 2012 and promptly posted a single Tweet. But he’s a multi-billionaire, which is why he has more than 50,000 followers waiting for Tweet #2.

18) Marissa Mayer @marissamayer

Net Worth: $300 million     Twitter Followers: 794 k

MM

The CEO of Yahoo joined Twitter in 2008, posting just over 1,200 Tweets as of October 2014. She dishes about Yahoo and the tech world in general to nearly 800,000 followers.

19) Biz Stone @biz

Net Worth: $250 million     Twitter Followers: 2.25 million

BS

The co-founder and co-inventor of Twitter has a net worth of at least $250 million. He’s been Tweeting since 2006, posting nearly 5,700 Tweets as of October 2014 on subjects ranging from innovation to charity. Is it any surprise he’s racked up more than 2.2 million followers?

20) Neil deGrasse Tyson @neiltyson

Net Worth: $1 million     Twitter Followers: 2.55 million

NT

The host of the super-cool reboot of Cosmos is also a bona-fide millionaire. He joined Twitter in 2009, posting just over 4,000 Tweets as of October 2014, and also has nearly 2.5 million followers.

21) Reid Hoffman @reidhoffman

Net Worth: $4.4 billion     Twitter Followers: 227 k

RH

The co-founder LinkedIn joined Twitter way back in 2006. As of October 2014 he’s only posted 776 Tweets, but collected 227,000 followers.

22) Pierre Omidyar @pierre

Net Worth: $7.6 billion     Twitter Followers: 489 k

PO

As the founder and chairman of eBay, Omidyar has assembled a worldwide financial powerhouse. Omidyar joined Twitter in 2007, posting nearly 5,500 Tweets as of October 2014. He also has 487,000 followers.

23) Carl Icahn @Carl_C_Icahn

Net Worth: $26 billion     Twitter Followers: 189 k

CI

The activist investor, worth more than $26 billion is famous for using financial muscle to shape the companies in which he invests. Icahn was a latecomer to Twitter, only joining in 2013 and posting 155 Tweets as of October 2014, but has already collected more than 189,000 followers.

While we may never achieve the “greatness” that many of these leaders have, we can certainly still aim high in our personal, and of course, our financial lives. These iconic individuals have established a proven reputation for knowing a thing or two about how to manage their finances. By following them on Twitter you might just have the good fortune of some of that wisdom rubbing off on you.

After all, what have you got to lose?