Debt settlement can help your debt problems
Your financial situation is different from someone else. The debt relief service that works for someone may not be the best choice for someone else. You should take the time to understand all the debt relief options available to you to find the best solution for your needs and goals.
What Is Debt Settlement?
Consumer Debt Settlement (or debt adjustment) is the process of resolving delinquent unsecured debt for far less than the amount owed by promising the lender a substantial lump sum as full payment. Debt settlement comes into play only with your unsecured debt like credit cards, medical bills and personal loans. This debt relief option will help you only if you have a financial hardship and have little likelihood of repaying your creditors. Your creditors are not going to negotiate and accept less than what you owe if there’s a belief you are able pay the entire debt originally agreed to.
The consumer debt settlement process will hurt your credit score since you will not be making full payment on your unsecured debt accounts. However you will already have hurt your credit score by being delinquent on these accounts, even before considering this debt relief option. As long as you are aware of the impact and have a plan to recover afterward, debt settlement can be the right solution for you. Since this process is truly debt reduction, It offers a fast exit from your unsecured debt and a clean start moving forward with your life.
Types Of Debt Settlement
How Does Debt Settlement Work?
Debt settlement is true debt reduction. This debt relief option is where you or a third-party agency negotiate with your lenders to resolve delinquent debt accounts for far less than the amount owed by promising the lender a substantial lump sum as full payment. Debt settlement comes into play only with your unsecured debts like credit cards, medical bills and personal loans. Your credit card accounts need to be already 3-6 months delinquent and you are in a financial hardship where your creditors have little expectation of receiving any payment on their accounts. The risk of receiving no payment is the motivation for negotiating with you as there is always an implicit threat that you might declare bankruptcy.
Debt Settlement Options
Debt Settlement Considerations
Is It Right For You
Most Americans carry an excessive amount of credit card debt. While convenient as a form of payment, it is an expensive type of debt to use and requires financial discipline. Many lack this.
Debt settlement is true debt reduction but at a significant cost to your credit history profile. Your opportunities for future credit from lenders will be limited for up to seven years. Additionally your cost of debt financing from a lender will be relatively high. You will be perceived as a credit risk for an extended period of time.
However, this debt relief option does avoid the alternative of filing personal bankruptcy and the resultant loss of your personal assets and other negatives in your personal life.
Any creditor accounts that you settle for less than the full amount that you owe, you could be subject to income taxes. Any principal (excluding interest and penalties) that is not paid back is consider to be canceled debt. This is treated by the IRS as a source of income and is taxable. To avoid paying taxes on this canceled debt you will need to show to the IRS that this occurred during a period of financial hardship using a 1099-C form.
Does It Affect My Credit
Yes it does. Debt settlement will trash your credit history profile. It is simple to understand. You were unable to honor your commitments to your creditors.
However, since you were already in a financial hardship situation prior to the debt settlement process, your credit history profile was already damaged due to late creditor payments.
Your creditor settled accounts will be designate as “account settled” rather than “account paid” on your credit report. This is a negative account status. As a result, this will restrict your access to new credit as well as raise interest rates for any future type of financing for up to seven years.
However your credit profile will begin to improve, subject to your consistency of account payments.
Finally you need to avoid the biggest mistake people make after eliminating credit card debt. That is, not stopping making new credit card charges.
Your life goes on.