Dedicated Account

Dedicated account summary: 

• A dedicated account is an account created for you by a debt resolution company to hold the funds you’re building up to offer your creditors. 

• You control the account and let the debt resolution company pay creditors for you once an agreement is reached. 

• Any fees you pay for debt resolution are also deducted from this account. 

Dedicated account definition and meaning

When you enroll in a debt resolution program, the debt resolution company creates a dedicated account for you. You own and control the account. Each month, you make deposits into this account while the debt resolution company negotiates with your creditors.

A dedicated account is typically an FDIC-insured account held at a bank. FDIC-insured means that if the bank were to go out of business (which is rare), your money would be protected. The FDIC is a government agency that works to make sure consumers get their money back, up to $250,000. Dedicated accounts could also be set up at an NCUA-insured credit union. NCUA is credit unions’ version of the FDIC.

Once the debt resolution company reaches a settlement agreement with your creditor and you approve it, the debt resolution company uses money from your dedicated account to pay the creditor. After at least one payment has been made to the creditor, the debt resolution company may take its fee from the same account. 

Key concept: A dedicated account is a secure bank or credit union account that holds funds for debt resolution.

More about dedicated accounts

Debt resolution can be a lifeline if you want to get rid of your debts and you need help because of financial hardship. Resolving a debt means getting your creditor to agree to accept less than what's owed. 

You can negotiate with creditors yourself or work with a professional debt resolution company. Debt resolution companies use dedicated accounts to hold the money that will eventually go to your creditors while debt negotiations are in progress. 

The money you deposit is safe and sound in your dedicated account until it's time to pay creditors, so you have one less thing to worry about. 

Dedicated account: a comprehensive breakdown

A Debt Consultant sets up a dedicated account for you when you enroll in a debt resolution program. 

Here's how the dedicated account works. 

• Your Debt Consultant reviews your debt and budget to create a custom debt plan for you.

• You make one affordable monthly deposit into your dedicated account. The amount could be lower than the total of all the minimum payments you’re making now. 

• Experts negotiate with your creditors to get them to agree to accept a percentage of the debt you owe.

• When the negotiator and creditor come to an agreement, it’s sent to you for approval.

• If you give the green light, funds from your dedicated account are used to pay your creditor. Some agreements are for a single lump-sum payment. Other times, for an installment plan.

• The debt resolution company deducts its fee from your dedicated account after your creditor receives at least one payment on the negotiated debt.

• After you make all of the agreed payments to your creditor, they forgive the remaining balance on the debt. That debt is now cleared and you don’t owe any more on it.

The most important thing to know about dedicated accounts is that you're always in control of your money. 

If your negotiator reaches an agreement with one of your creditors but you don't want to accept it, you don't have to. No money will come out of your dedicated account to pay the creditor until you authorize it. A reputable debt resolution company won't charge any fees until an agreement is reached, you approve it, and at least one payment is made.

Dedicated account vs. savings account

A dedicated account shouldn't be confused with a savings account. Here's the rundown of how they compare.

• Dedicated accounts are just for debt resolution. You can open a savings account for any reason. 

• You’ll give the debt resolution company permission to access your account, according to the terms of your plan. Other people typically wouldn't have access to your traditional savings account.

• The debt resolution company will only withdraw money from your account to pay your creditors and to cover the debt resolution company's fee. You could withdraw money from a savings account for any reason. 

• Dedicated accounts usually don't earn interest, while savings accounts typically do. 

So what happens to the money in your dedicated account if you don't resolve any debts? It comes back to you. If you enroll in a debt resolution program but then decide to withdraw, you won't lose the deposits you've made. You'll just be back to square one with finding a debt solution.