How Do Debt Resolution Programs Work?

Debt resolution programs usually are a combination of credit card debt settlement and consolidation. They work by settling outstanding balances then rolling all of the remaining amounts into a loan for the debtor to pay off. How beneficial they are to the debtor relies mainly on the credibility of the company that is offering the product. (See also how debt resolution programs lower bills).

Settling Credit Card Debt

A negotiator will contact the credit card companies and start out by asking to settle the outstanding balance for less than what is owed. On average, debts are settled between .20 and .60 on the dollar. What the company settles for depends on a number of different variables, which are unique to each card holder. It's hard to predict how much they'll take before any negotiations take place.

Once an amount is agreed upon, the card company will usually allow the balance to paid off in installments. They may give the debtor from three to six months to pay the balance due. After the amount has been paid, the credit line will be closed and the debtor will see their credit score improve due to the lack of balance showing.

Drawbacks to Debt Resolution Programs

It's entirely possible that a debtor can do this on their own. The problem is that a successful resolution may be limited. Part of the problem is that payments need to be missed for at least a couple of months before the creditor will start talks. This in turn will hurt the debtor's credit score until a compromise is reached.

Another problem is that debt resolution companies aren't always on the up and up. It's not unheard of for one to take the debtor's money and then do nothing. No return of value whatsoever. The debtor calls and is given some kind of excuse time after time. It takes careful research to find a company that will actually do what they say they do. (See also debt resolution vs debt settlement).

Consider Legal Help with Debt Issues

Believe it or not, there are lawyers out there who are just as effective, if not more so, than a debt consolidation company. The benefits of hiring a lawyer are many. A debtor has just one person to work with. One on one interactions create a much better plan of action than having a caseworker who's contacted over the phone. Ultimately, a credit card company will take a lawyer much more seriously as they're aware that they can easily advise their clients to file bankruptcy if the creditor won't negotiate.