Deposits

Debt settlement summary: 

• When you’re in a debt settlement program, you make regular deposits to build up money that can be offered to settle your debts.

• Your deposits will go into an account in your name at an insured bank or credit union. This is an account set up specifically to hold funds for settling your debts.

• Even though you own the account, it’s important not to use it for any purposes other than debt settlement. 

Deposits definition and meaning

Deposits are a critical part of negotiating a debt settlement. The goal of negotiation is to get a creditor to accept less than the full amount you owe. Your negotiation partly depends on the money you deposit into a dedicated debt settlement account. These deposits are a big part of the debt settlement process. 

Key components of debt settlement deposits

When you work with a professional debt settlement company, they’ll help you figure out how much money you can regularly set aside for debt settlement. Most people set up automatic transfers from their everyday bank account, and the deposits are then transferred electronically.

Here are some important things to understand about the deposits you make to a debt settlement account.

• The account should be held at an accredited financial institution, such as a bank or a credit union. 

• That institution must not be affiliated with your debt settlement company, and the debt settlement company won’t get referral fees from the institution receiving your deposits. 

• Deposits will typically be made monthly, via automatic transfers.

Key characteristics of debt settlement deposits

On the surface, the deposits you make into a debt settlement account may seem like any other deposits into a bank account. There are some important differences:

• You and your Debt Consultant will agree on a regular amount you can deposit monthly. They may ask you to set up automatic payments to make sure this happens.

• Once your debt settlement company successfully negotiates an agreement with one of your creditors and you approve it, your creditor will be paid from the money you’ve deposited in your dedicated account. The debt settlement company’s fees are also paid from your account.

• The account will be in your name. You have full access to the account, including the right to withdraw money from it, though this is not recommended while you’re in a debt settlement program. The sooner you build up the balance, the sooner the debt settlement company can start negotiating each of your debts.

How debt settlement deposits work

Regular deposits give the debt relief company something to offer when negotiating with your creditors.

Regularly keeping up with deposits and leaving the funds untouched lets your debt relief consultant help you as effectively and efficiently as possible. Regular deposits allow the debt relief company to project how quickly the money could build up, which creditors to approach first, and when to approach them.

Changing the deposit schedule or making withdrawals for other purposes could undermine the debt settlement process. 

Real-life examples: purposes of debt settlement deposits

Debt settlement could help significantly reduce your unsecured debt. This could include:

• Credit card balances

• Unpaid personal loan debt (if the loan is unsecured)

Your debt relief consultants use your deposits as an incentive for creditors, to get them to accept less than the full amount you owe. The deposits make it possible for your debt relief consultants to offer specific one-time amounts or propose payment schedules.