Once your accounts are settled you can bring your credit back by using small cards such as gas cards and pay them on time and off every month. If you are behind or in collections and the damage is already done settlement is the fastest and cheapest way to reestablish your credit without a bankruptcy. This common information avalible on the web and at book stores.

How credit card debt settlement works - An example

Let's say Mary owes a total debt of $100,000 on 5 credit cards. She is finding it difficult to keep up with the minimum payments. She has earlier consulted a credit counseling agency but the monthly payments they negotiated with her creditors were too high for her to pay. Mary doesn't want to file bankruptcy as she does not want to involve the court. So, finally Mary ends up working with a credit card debt settlement company XYZ. Here are the 4 steps on how Mary could settle credit cards and pay off her dues.

1. Stop payment to creditors: The representative at the credit card debt settlement company asks Mary to stop paying her creditors and deposit a certain amount monthly into a savings account (i.e. a trust account that XYZ creates for Jesse).
2. No more handling of collection calls: While Mary starts falling behind on her payments, she may receive collection calls, which are effectively handled by the representative. Mary doesn't have to handle such harassing calls on her own.
3. Negotiation starts soon after: As Mary accumulates good amount of dollars into the trust account, the representative at the credit card debt settlement company starts negotiating with her creditors one by one.
4. Debt is reduced by 45-55%: Finding that Mary won't be able to pay enough, her creditors agree to accept a reduced amount, say around 45-55% of her outstanding bills.

While Mary pays off one debt, she waits for better offers from other creditors. She makes sure that any extra money coming in would be used to pay off her bills. Finally, after a period of 2-3 years, Mary is able to settle credit cards debt with all her creditors.

Whether it's a credit card debt settlement program or one which includes other dues, you should stop paying your creditors initially. Instead, send in those payments to your settlement company. Otherwise, you cannot gather enough funds to settle credit cards dues and other bills.

Once you have enough funds deposited into your account, debt settlement (or credit card debt settlement) companies negotiate with your creditors/CA and attempt to stop all collection efforts.

Credit card debt settlement is quite common. Other than unsecured credit cards, medical bills, gas/store cards, personal loans etc can also be settled. But tax debts, alimony, child support, mortgages, car loans and federally insured student loans are excluded from a settlement program.

Debt settlement companies charge 10-15% of the debt balance that is forgiven under the program. The fees are based on:

• How much you owe in total
• Number of debt accounts you have
• How much you'll save by settlement

It usually takes 2-3 years to complete a credit card settlement program or settle personal loans, medical bills and other dues. The period of completion depends upon your total debt amount.

Once you negotiate debt settlements with your creditors/CAs, they may not come after you for the balance. It is illegal in many states such as Arkansas, Texas, Georgia, Michigan, Washington etc. However, in other states such as Alabama, Delaware etc, the creditor retains his right to sue you under certain conditions.

WARNING!!!!!! Debt Management can have a negative impact on your credit long term because a third party is listed on your credit report. Many lenders consider this as bad as a bankruptcy since you have given up on paying your bills yourself.

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