Weighing the Benefits of Debt Settlement

Written by admin on November 26th, 2010

Debt settlement is an agreement with a creditor to accept a lower amount of money to resolve the money owed.  Debt settlement can be attempted with the original creditor, but it is usually after the debt has been sold to a collection agency that debt settlement comes into play.  There is, of course, no guarantee that the current creditor will settle.  Larger agencies are usually easier to settle with than smaller ones, but if you’re in trouble it’s an option that should be looked into no matter what.  Let’s look at some of the pros and cons of debt settlement here.

The Positive Aspects of Debt Settlement

Debt settlement can be extremely helpful to a lot of people.  For starters, you can be free of a large debt for less than the full amount owed.  Obviously, this can save you more than a small amount of money.  In many cases, the debt amount can be reduced by 40-60%.  Your credit status will be improved by no longer showing a delinquent item.  In some cases, creditors will even agree to delete negative information already supplied to the credit bureaus.  Also, debts resolved through debt settlement are no long subject to collection calls or other collection action.

The Negative Aspects of Debt Settlement

There are a few negative aspects to debt settlement, but most of them should be entirely avoidable to an informed consumer with a competent agency on your side.  Creditors do have the option of reporting the settlement to the credit agencies as a settled debt rather than as paid in full, so make sure you know in advance what they plan to do in that regard.  Additionally, make sure you receive the terms of the settlement IN WRITING from the creditor.  If you do not, they may sell the remainder of the debt to a collection agency and you may not be able to prove that the debt was legally settled.  Additionally, collection agencies are required to report any forgiven debt of more than 0 to the IRS, which can then be counted as taxable income for you.  Talk to a tax professional about that if possible.  If you have a negative net worth, you may be able to avoid being taxed on forgiven debt.

Obviously, there may be more pitfalls or advantages to debt settlement as regards your specific situation.  Only by speaking to a debt settlement professional can you be made aware of these issues.  A good debt settlement company will be reputable and accredited and be staffed with professionals who can examine your personal situation to determine what is best for you.  Most companies will be able to give you a free consultation without any obligation to go through with doing business with them.  Try contacting a few companies if you’re not comfortable with the first one you speak with.  It’s always good to be aware of how much they’re charging you and what you might save by going with another agency.  Once you find an agency you’re comfortable with, you may discover that debt settlement is the right thing to do for you.

Debt consolidation help / Debt settlement attorney

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