Debt Settlement The Bad, The Good And The Truth

So, youre in over your head and youre considering a route known as debt settlement (debt negotiation), whereby your creditors will agree to accept less than the full balance owed on your accounts. Youve probably heard or read about many different opinions relating to debt settlement and youre not sure if this is the way you really want to go. Youre probably also questioning all that youve heard and are likely confused and unsure of whats fact and whats actually fiction. So, lets attempt to clarify the process of debt settlement by starting with the bad.



Obviously, your creditors will not accept less than what you owe them without a little pain on your part. Unless your accounts are already delinquent, dont even attempt to work out a settlement agreement with even one of your creditors because it simply wont happen. Period. Unfortunately, your accounts must be at a certain stage of delinquency prior to negotiating a settlement. If youd like to attempt to work something out while your accounts are current, or even 30-60 days delinquent, I urge you to do so because at the very least youll find out the truth and realize the end result wont be pretty. So, yes this is one of the ugly components of debt settlement. Your accounts must go delinquent, and subsequently, your credit score will be reduced for a few months.



Perhaps youve also heard that you may have a tax liability as a result of debt settlement. True? Maybe. You see, creditors are required by the IRS to report all canceled debt over the amount of $600 on Form 1099. Now, you may or may not be liable for income taxes as a result of debt settlement due to the fact that an insolvency rule exists for individuals who are classified as insolvent at the time of their various settlements. In order to be considered insolvent your liabilities must exceed your assets. If youre not sure where you stand, I recommend that you speak with your tax professional to find out if this is the case for you.



Well, weve covered the negative aspects of debt settlement; now lets take a look at the good that can result from negotiating with your creditors.



Lets face it if youre considering debt settlement, youre struggling to meet your monthly financial obligations, or your accounts are already seriously delinquent and youre even contemplating bankruptcy. Debt settlement is an excellent alternative to bankruptcy because it allows you to become free from debt without allowing your personal information to become a matter of public record, as would be the case with a bankruptcy filing.



Additionally, while the reported delinquencies on your various accounts will have a temporary negative impact on your credit score, the effect wont be nearly as severe as that of a bankruptcy filing. If youve managed to keep your accounts current, and your credit score is reduced during the process of debt settlement, your score will continually increase as your accounts reflect zero balances, which will occur with each final settlement payment. In most cases, individuals find that their credit score is back up between 600 and 700 within 6-9 months of completing the process of debt settlement.



Probably the most relevant benefit regarding debt settlement is that youll be free from debt. No more sleepless nights and constant worry, trying to figure out how youll get through the next month with a positive balance in your checking account.



Hopefully this piece has assisted you in figuring out if debt settlement is right for you. If youre still not sure, and I have not successfully clarified The bad, the good and the truth, you can learn more about debt settlement by clicking here.






Original pictures take http://infographiclist.com/2012/06/30/debt-consolidation-versus-debt-settlement-infographic/?utm_medium=twitter&utm_source=twitterfeed site