Debt Free Destiny

For the many consumers considering debt settlement as an option for eliminating debt the first step in the process is learning as much about the actual procedure as possible. Debt settlement is a legal method of eliminating debt that has been practiced long before the current economic crisis. Today, the number of people facing high interest debt burdens continues to rise with many people finding it impossible to keep up with their minimum payments due to job loss and dwindling levels of disposable income. As a result thousands of accounts are either in default or about to reach that status as consumers scramble to pay their basic living expenses only to discover there is not enough left to pay their credit card bill or other financial obligations. If you find yourself in this position you may qualify for debt settlement as an option to tackle your unsecured debt. Here we will cover what the process entails and who qualifies for this aggressive and often risky alternative to bankruptcy.

What is Debt Settlement?

Debt settlement or debt negotiation is process of eliminating debt that is unlike any other and therefore should not be confused with other popular methods of addressing high levels of debt. The actual process is fairly simple. Either you as the account holder or a third party company that you hire to act on your behalf, negotiates with your creditors to reach a settlement where you pay a portion of the balance owed on an account and the account is then closed. This process actually reduces the amount of money that you repay on your balances from 40%-60% of the amount you owe. Creditors are willing to consider this trade off when faced with the possibility of receiving nothing on the amount owed due to the account holder being forced into bankruptcy. There are significant risks associated with this process. Consider the following before you entertain the thought of debt settlement.

• Impact on your credit- There is no way around the fact that settling your debt for less than the amount owed will be viewed negatively on your credit report. A few of the reasons this occurs include: the way your settled account is reported on your credit report, creditors will not settle accounts that are current and the status of your credit before you entered the program. While it is important to have good credit in the world in which we live, it is more important however to be free of debt. In the end, debt will make it impossible to maintain a good credit rating therefore eliminating debt is the first priority.

• Legal ramifications- While many creditors would prefer to settle your account versus pay the expenses of seeking a legal judgment against you, there are situations where a creditor will sue an account holder that has not made payments, resulting in a judgment and possible wage garnishments in the future. This cannot happen without your knowledge, however it is something that everyone should consider before enrolling in a program or attempting to negotiate their debt on their own.


• Tax consequences- If you see savings over $600 when settling your debt, that amount has to reported as additional income when you file your income taxes. This means you could possibly owe taxes on the amount forgiven over $600. With that in mind, most people who qualify for debt settlement are in a financial position that makes this a non-issue. This is due to the insolvency clause through the IRS, where if you can prove your liabilities exceed your assets at the time of the settlement you are not responsible for paying taxes on the forgiven amount.

Who Qualifies For Debt Settlement?

There are several methods of reducing and eliminating credit card and other high interest debt. While there are many options available, your financial circumstances will determine which process is right for your situation. For anyone who has the resources or anticipates having the resources to pay their debt in full, they should do so to avoid the risks and consequences of debt settlement or bankruptcy. If you are facing a severe financial hardship due to loss of employment, divorce, death in the family, medical issues or any other situation which results in your inability to pay your financial obligations you might want to consider debt settlement. Anyone considering this process should in fact contact a bankruptcy attorney to find out if debt settlement is a viable option. This is recommended due to the fact that you not only have to have a severe financial hardship but you also have to have some way of saving money toward settlements in order for debt settlement to work. If you are unable to reasonably put money aside as you work with your creditors on a reduced payment, this process will undoubtedly not have the results you desire. Remember debt settlement is legal method of reducing debt that can help people get out from under the burden of unsecured debt. It is not without risk and should only be considered by those facing a real financial hardship and cannot pay their obligation per their contract agreement.