Debt relief service

Debt settlement is a system where a settlement company “settles” or negotiates reduced payments to debtors on your behalf. People who are considering this or are already participating in it are usually facing serious credit problems, maybe even bankruptcy.

There can be negative consequences on your credit report for a while when you enter into such a program. There also will be positive effects from it a little later on.

Before most debt settlement companies will even begin to work with you, your debt should be in arrears by a few months. This means the accounts are marked past due etc. Naturally, this puts a black mark on your credit report, because of your payment history. This mark is not going to stay there for years and years though like a black mark from a bankruptcy will though. This is only going to be there a short while.

As you continue to work with the debt settlement company your credit, report will improve though. Now that you are working with the debt settlement company and they are working to pay off your debts one at a time at a lowered rate of interest, lowered balance, and no penalty charges your credit report will get better. Your score will start to go up. Do not close the accounts when they are paid off though as this will negatively impact your score. It lowers your debt to income ratio, which is not good. By keeping them open, you have more available credit (that you are using part of until all the cards are paid off). This looks better to credit companies. It will also raise your credit score because you have more available credit.

It takes the average client of one of these companies between two and five years to pay off all their debts. Your credit report will not suffer for that whole period. The period where it does suffer that small amount is worth it to soon be debt free.

By: Hector Milla

So, you’re in over your head and you’re 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. You’ve probably heard or read about many different opinions relating to debt settlement and you’re not sure if this is the way you really want to go. You’re probably also questioning all that you’ve heard and are likely confused and unsure of what’s fact and what’s actually fiction. So, let’s 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, don’t even attempt to work out a settlement agreement with even one of your creditors because it simply won’t happen. Period. Unfortunately, your accounts must be at a certain stage of delinquency prior to negotiating a settlement. If you’d 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 you’ll find out the truth and realize the end result won’t 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 you’ve 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 you’re 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, we’ve covered the negative aspects of debt settlement; now let’s take a look at the good that can result from negotiating with your creditors.

Let’s face it – if you’re considering debt settlement, you’re struggling to meet your monthly financial obligations, or your accounts are already seriously delinquent and you’re 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 won’t be nearly as severe as that of a bankruptcy filing. If you’ve 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 you’ll be free from debt. No more sleepless nights and constant worry, trying to figure out how you’ll 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 you’re 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.

By: Marie Megge