questions on debt settlement

Hi Guest,

In order to go for a settlement process, you need to miss your payments by at least 90-120 days. This will make an impression on your creditors that you're unable to make your payments which might help you to get good settlement offers. But, the downside is missing your payments will dent your credit score.

In the mean time, your main aim should be to save as much money as possible and keep it in an emergency fund which will help you to pay off the debt once your settlement amount is agreed upon. Your settlement % can be anything between 25% - 60% depending on your creditor and your debt amount. Whatever be the settlement amount agreed upon, do take it in writing.

Creditors either ask you to pay the settlement amount in one lump-sum payment or you can negotiate for a payment plan of 2-3 payments. After you've paid the amount, request your creditor to report the account as Paid to the credit bureaus instead of Paid in full.

Remember. debt settlement will put a dent on your credit score. But, with timely payments, you can recover and improve your score in future. Best of luck.

There are alternative solutions rather then settling on your debt that may give you an affordable monthly payment & save your credit rating at the same time.

I would always recommend first to contact your creditors directly to see if they would set up any internal programs with you. If they will not work with you, you may want to contact a 501 C-3 non-profit debt management company to assist you with your debts.

A debt management company can assist you with restructuring your debts and saving your credit rating at the same time. A debt management company can negotiate your interest rates to a lower rate so it is easier for you to repay back the terms of your principle balances. A debt management company can assist you with lowering your monthly payments, stopping late & over the limit fees & can assist with bringing your pass due account back into a current standing.

A budget assessment is done to evaluate how overextended you are. Based upon the amount of "Disposable Income" you have left over once you are done paying your living expenses, a payment quote is given based upon what you can afford in your budget.

A settlement will have an adverse effect on your credit rating as it shows that you only paid back a portion of the balance rather then the full amount that you owe. Also, when you do a settlement, if the difference of the amount exceeds to be more then $600.00, someone has to pay taxes on the debt. Since the creditor forgave the debt, the consumer may have to pay taxes on the debt. At the end of the year, you may receive a 1099 in the mail & have the file the difference as "Earned Income" in your taxes.

You have to make sure you weigh the pros & cons when doing either a debt settlement program or settling on your own.

I hope I was able to give you some insight on alternative solutions that may be able to assist you. If in need of free financial assistance by a certified financial counselor, please do not hesitate to contact me.