DEBT SETTLEMENT, LAYING THE CARDS ON THE TABLE FOR YOU
When faced with mounting debt burden and you are about to buckle under it’s weight, several options are made available to you by a financial expert/consultant. Deciding on which option to choose to get out of debt becomes another burden on its own.
Reading this article will further expose the nitty gritty of debt settlement. What Debt settlement is? How Debt settlements work? The advantages/disadvantages of debt settlement.
What is Debt Settlement?
Debt settlement is a debt relief method in which a supposed debtor negotiates with the creditor for substantial debt reduction and subsequently pays off the renegotiated debt. It is a method often considered as a last resort instead of bankruptcy or insolvency.
How debt settlement works
For instance a debtor owing $100,000 may either, using a debt settlement company or not negotiate with its creditor to pay a one-off payment of $40,000. If the creditor accepts this proposal the debtor then pays the agreed sum and some agency fee and is then let off the hook. Please note that the creditor is not obligated to accept the proposal thus making debt settlement option a little bit complicated especially if you are in debt to more than one company.
The following are some of the advantages and disadvantages of taking Debt Settlement has an option:
• A major plus for debt settlement is the fact that you actually pay less than you owe which in turn might be a disadvantage on your credit report.
• The only other advantage of Debt settlement is the feel good factor it gives i.e. Rather than insolvency and filing for bankruptcy, debt settlement is a better option.
• Debt settlement process can last for as long as 2 – 3 years. This time lapse means accumulation of further interest and other debt which invariably goes into your credit reports.
• Debt settlement normally attract a negative indicator on your credit report, A report which is used to further advance credit to you whenever you need it. The obvious fact that you are paying less than you owe via the Debt settlement option alert creditors to your credit worthiness. Consequently it is advisable to use other options if you do not want your credit rating to be lowered.
• Debt settlement often attracts additional expense in terms of fees to be paid to the debt settlement companies. For instance, If a debt settlement company helps negotiate your payment to say $20,000 you are obligated to the company to between 20-25% of the amount i.e. $4,000 or $5,000.
• The IRS provision consider the amount of relief gotten from debt settlement to be regarded as an income thus resulting in higher tax
In summary Debt settlement is most preferred to bankruptcy or insolvency. The disadvantage of taking the debt settlement rout to debt freedom massively outweigh its advantages.
A financial expert or organization will further help you in your quest to stay out of debt.