How to Navigate the Debt Settlement Process
If you’ve got $10,000 or more in credit card debt, you’ve probably seen a lot of advertisements for debt settlement programs. These ads promise fast relief, but don’t mention the risk of being sued, potential wage garnishment, major negative credit report impact, and high fees. So, how can you avoid the traps? Keep reading for some tips and tricks that can help you navigate the debt settlement process. But first, make sure you understand what you’re getting into.
One of the first things to know about debt settlement is the terms and conditions. Oftentimes, a debt settlement company will ask you to send a “no contact” letter to your creditors. However, it’s unlikely that they will tell you about the fees they’ll charge you for legal assistance or penalty fees. In some cases, they might even ask you to stop paying the creditor directly. If you don’t comply with this rule, your payments will be delayed even further and your credit score will likely fall.
Another important thing to know about debt settlement is that it’s not a magic process. It’s a combative process and the creditor wants as much money as possible back. Debt settlement works best with debts that have been past the six-month mark. However, if the debts are more than six months overdue, the creditor will probably turn them over to a debt collection company. Therefore, the best time to seek a debt settlement is before your account reaches this point.
Another option is to hire a debt settlement company. It is best to choose a nonprofit agency because these are backed by the National Foundation for Credit Counseling and comply with federal regulations. The fees for these companies are usually lower than the fees of a for-profit company. A nonprofit debt settlement company will waive up to 40% of your debt and pay you back with fixed monthly payments over 36 months, rather than a lump sum. So, even if you’re paying a debt settlement company, it will still be cheaper than hiring a lawyer.
Debt settlement is a viable option for those with high debts. While it may be difficult to pay back what you owe, it’s often possible to work out a payment plan that allows you to reduce your debt and stay out of debt altogether. But you’ll need to be tough-skinned to succeed. The process typically takes 36 to 48 months to complete and requires patience and a thick-skinned person.
A good debt settlement company should disclose their fees and costs up front. You should also get clear guidelines and an estimated time before settlement offers are sent to you. A reputable debt settlement company has relationships with major credit card lenders and understands the marketplace. It is also a good idea to check whether the company has a license to practice law in your state. If you have questions, contact the state attorney general’s office or the local consumer protection agency.
One important consideration when pursuing debt settlement is the impact on credit. In addition to the credit score being lower, a debt settlement can negatively affect your financial situation, and creditors can still call you to demand repayment. But if your other options are bankruptcy or another option, debt settlement can help you avoid those negative impacts. With so many benefits, debt settlement is a viable option for people with high credit scores who don’t want to file for bankruptcy.
A debt settlement company will ask you to stop paying your credit cards in exchange for a reduction in your debt. This is because if you can’t make payments, creditors are less likely to negotiate. Plus, you’ll have a delinquency on your credit report. This will affect your chances of getting credit in the future. In order to avoid this problem, choose a debt settlement company that does not have negative effects on your credit.
The process of debt settlement will take several years, and any savings you make from it are likely to be taxable income. For this reason, it’s important to have adequate money in your settlement account. Additionally, it’s important to note that the IRS will require you to pay taxes on any forgiveness of debt that you receive. If you’re lucky, your creditor will agree to settle for a smaller amount than you owe them, but you’ll still need to pay taxes on the money you save.
In the process of debt settlement, the company will contact your creditors and negotiate a reduced payment of your debts, and sometimes even settle for less. This option will save you tens of thousands of dollars in interest and principal, and is far better than filing for bankruptcy. Furthermore, debt settlement companies will charge you about 20% to 25% of the amount you’ve saved, and you’ll need to maintain a savings account in order to pay them.