Debt Settlement Advice

 

The concept of debt settlement is a principal reduction on the amount you owe paid with a bulk payment to your creditor to satisfy your debt.

Ok, so you’ve got a ton of credit card debt and you just can’t make the payments.  Maybe you’ve tried to lower your payments by contacting your lender to lower your interest rates. Maybe you’ve even tried debt consolidation and you just can’t keep up with your payments and now you’re considering the bankruptcy option.  Before you do that you may want to look in to the benefits of debt settlement.  Debt settlement can be a real win – win for a bad situation.

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Let’s say you have $40,000 in credit cards and you just can’t make the minimum payments of $900 anymore especially since you missed one payment and your interest rates are pushing 25-30%.  Plus, it’s going to take you 10 – 50 years to pay off.  Yikes!   A successful debt settlement is going to save you typically 40 – 60 % on your monthly payments and the total debt amount.  A much larger savings if you consider that the interest of your debt is effectively removed.

What are the pros and cons of debt settlement?

Pros                                                                      Cons

Dramatically lower your monthly payments                                Negatively impacts your credit score

Total debt reduced dramatically                                                Paying taxes on forgiven debt

Get out of debt faster                                                                Can be sued by creditors

Credit score not hit as bad as bankruptcy

Avoid bankruptcy

Debt settlement is not the panacea for your debt woes however it can be a good alternative to bankruptcy.  There are a few considerations to make before going this route.  You can do debt settlement on your own or you can hire a company to do it for you.  Choosing a debt settlement company needs to be done with caution because there are predatory companies that are just looking for a quick buck and can actually make your situation worse.  Also, you need to look at the possible tax ramifications.  According to the IRS you may get IRS form 1099-C on the forgiveness of debt over $600.  Many people ask how does debt settlement impact credit scores?  The short answer is it’s better than bankruptcy.  Also, because in a debt settlement situation your creditors typically aren’t getting paid on a monthly basis they always have the recourse of trying to sue you for the debt.  There are statute of limitations for each state that dictate how long a creditor can come after you.