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How the Debt Settlement Plan Works

Download this Guide as an Easy to Read PDF.

A Debt Settlement Plan (DSP) is a viable debt relief option for those who cannot afford the monthly payments of a Debt Management Plan (DMP), and who are looking for an alternative to bankruptcy.

A DSP allows these consumers to pay back at least a portion of their debt. Whether you are enrolled in a DSP or are considering doing so, it is important that you understand exactly how the plan works.

What is a Debt Settlement Plan?

With a DSP, we negotiate with your creditors on your behalf to accept payment of a percentage of your unsecured debt to satisfy your entire unsecured debt. You make monthly plan payments to us, which are held in an escrow account to build in value until your creditors agree to accept our settlement offers. We do not receive any fees or payment until we have successfully negotiated a settlement offer with a creditor on your behalf. Once this happens, you will be notified and will be prompted to approve our Success Fee.


How does a DSP get me out of debt?

When evaluating your options, we look at your balances, creditors, delinquency, and disposable income to ensure that our DSP is the best solution for your specific needs. If so, we calculate a monthly payment that will allow you to work your way out of debt in approximately three to five years. When you join a DSP, you will make your monthly payments directly to us to hold in an escrow account to build in value. Once enough money has built up in your escrow, and your creditors have agreed to accept our settlement offers for less than the amount of debt owed, we will begin to distribute payments to your creditors, based on the negotiated amount. Consistent monthly payments, along with creditor acceptance of our offers, are what allow you to settle your debts for a percentage of the amount owed.

How does the Negotiation Process work?

What is an escrow account?

An escrow account is an FDIC-insured bank account that your money is deposited into for safe-keeping until enough funds have built up to submit a settlement offer to a creditor. The escrow account is held in your name, and you have complete access and full control of the money deposited in there. No money is paid to the creditor until an offer is made and the creditor has agreed to receive a lowered settlement amount than what is actually owed.

When does the creditor negotiation process begin?

We wait to begin any negotiations with your creditors until the balance is sufficient enough. This usually happens once you have built up about 40% of your starting debt.

We settle thousands of accounts each month, and have a team of experienced negotiators who work to build relationships with various creditors. In order to determine the most optimum time to begin the negotiation process, we use a settlement optimization tool, which notifies us when an account is ready based on the amount of money in escrow, and the likelihood that the creditor will agree to a settlement, based on our past interactions with that particular creditor. We keep you notified of our progress along the way through your My CareOne account, where you can monitor the negotiation activity on each of your accounts.

What happens when a creditor receives a settlement offer?

Once a creditor receives a settlement offer, they have 48 hours to either accept or decline the offer.

  • When the creditor accepts the settlement, it means they have agreed to accept less than the full amount owed. The creditor then sends us an acceptance letter, which we place in your file, and we notify you of their acceptance. Payments are then distributed to your creditor in accordance with the terms of settlement. Because some settlement deals involve multiple payments, it is imperative that you make consistent and timely payments once a settlement offer has been accepted. Once a settlement is successfully negotiated, we will notify you as to the specifics and ask you to approve our Success Fee.
  • If the creditor declines the settlement, we place a note in your file documenting the decline. We recommend that you leave the account on your plan, because as the debt ages, it loses value and we may be able to settle at a later date.

How do I know if the creditor has accepted the offer?

There are three ways to check the status of your proposals:

  • Login to My CareOne, click on My Program and check your settlement activity
  • Review your monthly CareOne statements
  • Contact CareOne at 1-800-CARE123

Why is making consistent payments so important?

While every plan varies slightly, we estimate that debt settlement will take approximately 3 to 5 years to complete, based on your debts, our estimates of what your creditors will accept to settle the debts, and how fast you can save the settlement funds. This time period is very dependent upon your ability to make timely payments and your creditors' willingness to accept our settlement terms.

If you are unable to make a payment before we have successfully negotiated a settlement, this may affect the estimated length of your plan, as it will take longer for money to build up in your escrow account. If you miss a payment after we have successfully negotiated a settlement for you, your creditor may withdraw from the settlement, which can be detrimental to the successful completion of your plan. If, for any reason, you find yourself unable to make a plan payment, it is important to call our Customer Care department at 1-800-CARE123 so that we can work with you to determine a course of action that does not jeopardize your success on the plan.

Can I make early and extra payments?

Yes, you can make early and extra payments. In fact, we encourage you to put as much money into your escrow account as possible. The faster the money builds in your escrow account, the more quickly we can begin negotiating with your creditors to accept a percentage of the amount owed. It is important to keep this in mind when you receive a tax refund, a raise, or any other additional income.

How do payment date changes work?

While you do have the ability to change your payment due date on your plan, it can impact your success. If you are in the process of building up your escrow account, and we have not negotiated any settlements yet, you do have more flexibility to make date changes. However, you must make a payment each month.

If, however, we have already negotiated with your creditor and a settlement is in place, we recommend that you do not make any changes to your payment date throughout the duration of the settlement. Your creditors have accepted our settlement offer, and expect to receive a payment every 30 days. If you change your debit date, and miss a payment, we may not have enough money in your account to pay your creditor, which could cause your creditor to withdraw from the settlement. This can be detrimental to the successful completion of your plan.

We do understand that sometimes there may be circumstances beyond your control requiring you to miss a payment. If, for whatever reason, you need to miss a payment, please call our Customer Care department at 1-800-CARE123, so that we can work with you to resolve any issues and properly reinstate your plan payments.

How do I know if an account has been settled?

There are three ways to determine if an account has been settled:

  • You will receive a communication from us via email, and in your My CareOne account, letting you know that an offer has been accepted, and prompting you to approve our Success Fee
  • You can login to My CareOne, click on My Program and check your settlement history
  • You can review your monthly CareOne statements

What free tools and resources can I take advantage of?

Through your personalized My CareOne page, you can track your progress, review the status of a settlement proposal, and even make account adjustments. When you log in to My CareOne, you will find information and content that is relevant to the plan you are on, where you are on your financial journey, and what stage of life you are in.

We also have an extremely robust online community where you can connect with others facing similar financial situations by participating in our groups and forums, and reading our blogs. Some of our most successful customers are those that participate frequently in the community and take advantage of the many free resources our website has to offer. These resources are designed to help you learn to manage your money wisely in order to create a secure financial future.

We take your success very seriously and work hard to support and assist you in selecting the plan that is right for you.

Please feel free to contact us at 1-800-CARE123 with any questions.

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