What You Need To Know
Are your credit card payments more than you can afford to pay each month? If so, it’s not likely that you’re able to afford to pay extra money toward each account, which would enable you to pay off your credit card debt at a much faster rate than if you simply pay the required minimum payments. If you’re frustrated and feeling like you’ll be in debt forever it’s time to take a realistic approach to determine what path toward a debt-free lifestyle you should take.
Even before you start looking at your options, however, take a few moments to cut up your credit cards because those little pieces of plastic have done you absolutely no favors. As a matter of fact, they’ve very likely led to numerous sleepless nights and constant worry due to significant financial concerns.
Now, if you’re in serious financial trouble due to credit card debt, and you’ve considered bankruptcy, consumer credit counseling service, debt consolidation and debt settlement as possible solutions to help eliminate your debt, you may have decided that debt settlement sounds like your best option to become debt-free. If so, you probably have some questions or concerns regarding debt settlement, and who can blame you? After all, each potential option has both pros and cons, which should be examined closely.
Let’s start with the potential negative effects of debt settlement:
Credit Score: If your credit score is pretty decent, it’s likely that it will be reduced during the process of debt settlement. You see, if your accounts are current, and you attempt to negotiate with your creditors to achieve a reduced pay-off amount, you won’t be taken seriously.
Tax Liability: Debt settlement may also result in a possible tax liability when it’s time to file your income taxes. You see, creditors are required to report any forgiven debt, which exceeds $600.00, to the IRS. You’ll receive IRS Form 1099 for the amount of the forgiven debt, but it’s important to speak with a tax professional because if you’re classified as insolvent at the time you negotiated and paid your settlement you will not be liable for any income tax. In order to qualify for this classification, your liabilities must exceed your assets.
Sufficient Funds: If you’re contemplating debt settlement it’s crucial to understand that you must have access to sufficient funds to follow through with a reached settlement agreement with your creditors, otherwise, the negotiated settlement agreement will become null and void. In other words, if you have an account balance of $40,000 and your creditor agrees to accept 50% or less as payment in full, you must have the ability to make that payment by the given deadline.
Often times, creditors agree to accept the settlement amount in 4-6 installments in order to ensure that the settlement agreement is successfully completed
While the aforementioned potential effects of debt settlement are common, there are also many positive effects of debt settlement, which should be taken into consideration, as well.
Debt-Free Status is Accomplished Over Shorter Period of Time: Unlike debt consolidation, consumer credit counseling or Chapter 13 Bankruptcy, the process of debt settlement can be completed in a matter of months, depending on your ability to access funds to pay the reduced settlement balances to your creditors. You see, consumer credit counseling and debt consolidation loans both consist of long-term payment agreements, which can last from 5-10 years. Chapter 13 Bankruptcy also involves a long-term repayment schedule, usually about 5 years. So if you’re anxious to put your debt behind you sooner rather than later, you’ll be pleased with your decision to choose debt settlement to resolve your various creditor accounts.
Improved Credit Score: While debt settlement may initially impact your credit score, the end result will be a much improved credit score. You see, one of the major factors taken into consideration in credit scoring is the amount of outstanding debt you actually owe. Once your creditors notify the credit bureaus of your updated status, and that your accounts have zero balances, you’ll see an immediate increase in your credit score. Also, as each month passes, the negative marks on your credit report will have much less of an impact on the actual score. Chances are, you’ll have a higher score within a year of completion of the debt settlement process than you had prior to entering to a debt settlement program.
Debt Settlement Leads to Financial Freedom: Making the decision to commit to a debt settlement program can be difficult; after all, you’ve been struggling to pay your bills for a long time and changing your money methods can be unsettling. That being said, the majority of individuals who choose debt settlement find that they feel a great sense of relief once the process begins, and an even greater sense of relief after all of their accounts have been paid in full, and no further money is owed. No price can be put on a worry-free lifestyle and financial freedom.
Just as with most decisions you’re faced with, the solution to your financial problems has many factors to be addressed and considered both positive and negative. In the end, it’s important to base your decision on your own personal needs and ability.
More often than has ever occurred in the past, a significant amount of people are finding it extremely difficult to pay all of their monthly bills and as a result, have fallen behind on their payments. When issuers of credit cards receive late payments even by just one day their normal policy is to raise consumers’ interest rates by staggering amounts, leading to additional late payments, progressive collection activity and very possibly bankruptcy.
If you’re dealing with circumstances very similar to these, chances are you’ve looked into debt settlement, but still have some doubts regarding whether or not debt settlement is the path you should choose to become debt-free.
Debt Settlement Defined. Debt settlement is a process whereby creditors agree to accept less than the full balance owed to them as payment in full. In other words, if you owe your creditor $10,000, there’s a good possibility that you can settle your account for anywhere between $3,000 and $5,000, with no further balance owed.
Your Credit Score May be Affected. While debt settlement doesn’t contribute to a lower credit score, delinquency does. Unfortunately, your creditors won’t consider offering or accepting a settlement agreement on your accounts until after the accounts have fallen into a delinquent status. Most people considering debt settlement are already delinquent, and their credit score will improve significantly after a zero balance is reflected on their credit report. Those who are not delinquent, however, will likely see their credit score decline before it improves. For most people, however, a decent credit score is less important than financial freedom and peace of mind.
You May End Up With a Tax Liability. Creditors are required by the IRS to report canceled debts over $600, and you would also be required to report the amount of your forgiven debt as income, unless you were insolvent during the time which you settled your various accounts. In order to be classified as insolvent, your assets may not exceed your liabilities, which may be highly probable if you’re buried deep in debt.
Debt Settlement Can Take Several Months to Complete. Depending on the amount of money you owe, the stage of delinquency what your accounts are and your ability to accumulate sufficient funds for settlement, this process can take anywhere from 30 days to 30 months.
Not All Debt Is Negotiable. Only unsecured debt may be negotiated. This includes credit cards, medical bills, personal loans, department store credit cards and gas cards.
Fortunately, the process of debt settlement has helped many individuals and businesses avoid bankruptcy. If you’re at the end of your rope and you simply don’t see yourself ever digging your way out of debt, debt settlement is certainly a viable option, and one you should consider. While it’s important to understand this process and all that it entails, it’s equally important to realize that you could very likely be strapped with debt and unaffordable payments for many years to come, so debt settlement is definitely something worth looking into.
Negotiating With Your Creditors
Credit card debt in the United States is at an all-time high, and delinquency rates on installment loans, revolving credit and mortgages have experienced double digit increases, as well. Fortunately, most mortgages and installment loans aren’t subject to interest rate increases as a result of delinquency. This is not so with credit card debt.
Many credit card issuers will increase an account holder’s interest rate after just one late payment – and in most cases, even if that one late payment is received only one day past the scheduled due date. Unfortunately, this practice – which many consider the legal equivalent of loan sharking – has resulted in thousands of individuals facing financial devastation. Those people who were just barely making ends meet now just can’t seem to generate enough income to meet their monthly financial obligations. Many have come to a fork in the road and must now choose the right path to successfully pay off their credit card debt.
If you happen to be in a similar situation, and are experiencing financial difficulty, but would like to avoid bankruptcy, you may want to consider negotiating with your creditors to reduce your pay-off balance. Don’t, however, expect to make a simple phone call and successfully reach a negotiated settlement amount; debt settlement just doesn’t work that way.
As a matter of fact, if you contact your creditor and ask for assistance of any kind through debt settlement, interest rate reduction, etc., they’ll likely very politely explain that they’ are unable to assist you, but if you make your payments on time for the next 6 months we’ll be happy to review your account for a possible interest rate reduction.
So, what should you do? Be patient and take the time to become educated in the area of debt settlement. There are many resources available, which have the potential to be extremely beneficial so that you’ll successfully complete the process of debt settlement. If you discover that negotiating with your creditors to achieve reduced settlements on your accounts is more of an undertaking than you care to deal with, there are several competent companies that would be more than happy to represent you.
Should you decide to hire a debt settlement firm, it’s important to be sure that the company representing you is goal-oriented and focused on your financial success. Many firms will work on a contingency basis, only charging a fee after a satisfactory settlement has been reached with your creditor.
Whatever path you choose to eliminate your debt, you can take comfort in knowing that your financial concerns will soon be a thing of the past, which will likely result in no more sleepless nights and no more constant worry. Believe it or not, you will once again feel a sense of relief and a very welcome feeling of calm.
There are currently many people who find themselves in a very difficult financial situation, where they’re faced with mounting debt and not nearly enough income to meet their monthly financial obligations. Obviously, those individuals faced with such challenges have no choice but to find the best solution to become debt-free and put their money worries behind them. Many find their search leading to alternatives such debt settlement, which has been growing in popularity in recent years.
Unfortunately, there happens to be a great deal of untruths to be found, regarding the process of debt settlement, and if you’re considering this route it’s important to be well-informed and aware of the facts.
It’s time to put your money concerns behind you, but it’s equally important to conduct sufficient research so you’ll be well-informed before attempting to follow a course of action with which you’re not familiar. There are many debt settlement companies that don’t require large up-front fees, or even that you make monthly payments to a trust account. These same reputable companies will agree to work for you on a contingency basis, allowing you to pay for services rendered only after a satisfactory agreement has been reached with your creditor. Before hiring a company be certain to interview many firms, and please beware of companies whose representatives appear to be more interested in collecting your money than legitimately assisting you to resolve your current predicament and overcome your financial hardship.
Not sure how to get out of debt? Here are a few easy tips you can follow to get the best results in the shortest time.
Incurring debt is easy, but managing debt is not. It requires financial discipline and knowledge of debt reduction solutions to do so. One solution all counselors favor is to shift to debit cards. Once you do that, you spend only as much which as is in your bank account. The question of incurring new debt will not arise if you stick to your goal.
The second, and relatively easier, solution is to reduce the number of credit cards that you own. This can be done by taking a pair of scissors and cutting all your credit cards, one by one. You can always retain one credit card for use only in an emergency. This credit card should be the one that charges the lowest rate of interest. These 2 steps reducing the number of credit cards you have and obtaining a debit card will cut down on your wasteful spending. You will then have more disposable income to clear your debts.
Your third step is to transfer all your old credit card balances to the card that you have retained. When you do so you lower the interest on your cumulative payments. This is because some credit card companies charge as much as 25%. You may want to consider transferring all your balance to a card company that is offering a 0% balance transfer scheme. This will further reduce the interest accumulation on your existing debt.
Debtors who own a house can seek a home equity loan, or take a fresh line of credit. There are 2 advantages to taking such a loan. The first is that this loan is available at interest rates much lower than those charged by credit card providers. The second is that you make only one monthly payment to the bank that provided the loan. There is no fear of late fees, missing payments, or harassment by debt collectors.
Another possibility is to take out a personal debt consolidation loan. This can be obtained from banks, financial institutions, and credit unions. The debt consolidation loan works like a house loan and gives you the breathing space that you desperately need to reduce your debts.
Debtors who don’t want to take out a loan can consider selling unnecessary objects lying in the house. These may include jewelry, antiques, furniture etc. The income that this generates can be used to pay down the debt. Debtors can even withdraw small sums from a savings account that pays low interest and use it to clear debt. The end goal is the same for all these methods: getting rid of high interest debt and consolidating it so that you can face the music all in one place. Hopefully, attacking just one debt source at a time will allow you to win the battle more easily.
“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.” Ogden Nash
6 Smart Money Management Tips – https://www.mastersofmoney.com/6smartmoneymanagementtips/