More often than ever before, a large number of people are having a hard time paying all of their monthly bills and have fallen behind on their payments as a result. When people don't pay their credit card bills on time, even if it's just by one day, credit card companies usually raise the interest rates by huge amounts. This can lead to more late payments, more collection efforts, and even bankruptcy.
If you're in a similar situation, you've probably looked into debt settlement but aren't sure if it's the best way to get out of debt. Here are some facts about how debt settlement works to help you decide what to do about your financial situation.
- Debt Settlement (Debt Negotiation) Defined. In debt settlement, creditors agree to take less than the full amount owed to them as full payment. In other words, if you owe your creditor $10,000, you may be able to settle your account for between $3,000 and $5,000 and not have to pay anything else.
Your credit score might change. Debt settlement doesn't hurt your credit score, but being late on payments does. Unfortunately, your creditors won't be willing to offer or accept a settlement agreement on your accounts until they have become delinquent. Most people who are thinking about debt settlement are already behind on their payments, and their credit score will go up a lot when their credit report shows that they owe nothing. Those who are not behind on their payments, on the other hand, will probably see their credit score go down before it goes up. Most people, though, care more about being financially free and having peace of mind than they do about having a good credit score.
- Settling a debt can take a few months to finish. This process can take anywhere from 30 days to 30 months, depending on how much money you owe, how far behind you are, what your accounts are, and how quickly you can save up enough money for settlement.
- You might have to pay taxes. The IRS requires creditors to report cancelled debts of more than $600, and you would also have to report the amount of your forgiven debt as income, unless you were bankrupt when you settled your accounts. To be considered "insolvent," your assets can't be worth more than what you owe, which is likely if you have a lot of debt.
- Not all debt can be talked about. Only debt that is not secured can be negotiated. This includes things like credit cards, medical bills, personal loans, gas cards, and credit cards from department stores.
Many people and businesses have been able to avoid bankruptcy thanks to the process of debt settlement. If you're at the end of your rope and don't think you'll ever be able to get out of debt, debt settlement is an option you should definitely think about. Even though it's important to know how this process works and what it entails, it's also important to realise that you could be stuck with debt and payments you can't afford for a long time, so debt settlement is something you should definitely look into.
