What is a Debt Settlement Plan?

A debt settlement plan (also called a DSP) is a structured approach to resolving eligible unsecured debts for less than the full balance owed, without filing for bankruptcy. A debt settlement company reviews your finances and your debts and identifies which lenders are likely to accept an offer-in-compromise — payment of less than the full balance — in exchange for canceling the debt.

Under the DSP, you stop making payments on the bills identified for settlement, and when the accounts go into default, the debt specialist negotiates a lower pay-off price with the creditor. You pay the settlement amount, plus the debt settlement company’s fee and your debt is gone.

The money for those payments comes from an FDIC-insured savings account established in your name and managed by a bank or other third-party service provider. Each month, you deposit an agreed amount of money into that account to fund the debt settlement effort. Those funds represent a portion of the monthly minimum payments you had been making before entering into the debt settlement plan.

How a Debt Settlement Plan Works

Once you enroll, your debt settlement plan outlines which eligible unsecured debts you’ll include, how much you’ll set aside each month, and the estimated timeline for resolving each account. You’ll deposit that monthly amount into a dedicated FDIC-insured savings account in your name, which is managed by a bank or third-party service provider. As funds build, your debt specialist negotiates with creditors to resolve enrolled accounts for less than the full balance owed. You remain in control of the account and can withdraw funds at any time, though doing so may end the program.

For a full step-by-step breakdown, see How Debt Settlement Works.

No Upfront Costs

Under a 2010 Federal Trade Commission (FTC) rule, debt settlement companies that operate under the Telemarketing Sales Rule cannot collect fees until they have successfully negotiated a settlement, the client has agreed to the terms, and at least one payment has been made to the creditor.

Consumers should be cautious of any company that requests payment before resolving a debt. 

Work with ClearOne Advantage

 If you have money coming in every month but are struggling to make all your payments on time or are unable to pay down your debt, speak to a Certified Debt Specialist today. We'll explore your options and help you find the right plan for your situation.