If you're deeply in debt (and especially credit card debt), you have many good options open to you in regards to getting out. Debt settlement can be one of the best options, but there are some things you need to know first. In addition, critics of debt settlement do not give you the whole story. In general, there are three main areas you need to focus on when you are looking settling your debt for less than you owe.
Choose your debt settlement company
When it's time to negotiate a debt settlement, go with a debt settlement company that's reliable and experienced, and do not try to do it by yourself if your are the least bit nervous about confronting your creditors. Which type of company should you choose? There are a lot of different companies on the market, but most of them are in it for themselves, not you. Many exist to make a quick buck by taking your money and putting forth a little effort to try to get you a settlement ,. What you want is a company that's going to settle your debt quickly and as easily as possible, and who will get you the best settlement you can hope for.
Ideally, the company you choose should give you all the options up front and will represent you with integrity. Costs and risks should be discussed with you immediately, before you sign anything. In addition, check with the Better Business Bureau and make sure the company you pick has a good record with them. If a company you're considering has a lot of unresolved complaints, move on and find another.
In addition, look for a company that will work on a performance-based fee schedule because they have the incentive to get you the best settlement ..
What about tax liability on my canceled debt?
Many critics of debt settlement programs use the words "tax liability" to scare people away. It is true that there is a tax liability with these programs, because cancelled debt that is in the amount of more than $ 600 must be reported to the IRS on a form 1099-C. Because the IRS views this as taxable income in the form of a gift, you must pay tax on the forgiven amount, and claim the amount on line 21 of your 1040 form.
However , the IRS also has a contingency called the insolvency rule. This means that if your liabilities are in excess of your assets, you are not required to pay taxes on the cancelled debt coming from a settlement. This is true the majority of people who opt for a debt settlement solution. If you are in fact insolvent, it's a matter of you simply filling out IRS form 982 and documenting this for the IRS.
The reality is, you're already in financial trouble, which basically means that you are probably already insolvent. This, in turn, is probably going to reimburse you of having to pay taxes on the cancelled debt. You will have to fill out IRS Form 982 and document your insolvency. Consult with a tax professional when you prepare your taxes after this type of settlement.
What about a black mark on your credit report?
If you participate in debt settlement, you're not necessarily going to have a significant negative effect on your credit report for doing so. However, the "experts" do not need to tell you this and in fact use this as yet another scare tactic to avoid debt settlement programs.
If in fact your debt situation is serious enough that you are thinking about debt settlement, bankruptcy, or any other type of serious solution to your debt problem, your credit score has probably already been negatively affected. Therefore, choosing debt settlement is not going to negatively affect your credit rating much more than it already has been.
In fact, if you choose debt settlement, you might just raise your credit score faster than if you do nothing. Choosing debt settlement will drastically reduce your debt load, which reduces your debt to income ratio. If you choose debt consolidation, this will not happen.
Another "method" out of serious financial difficulty, bankruptcy, in fact has a long-lasting negative effect on your credit report. It's not recommended without your creditors have already taken you to court.
Honestly, your credit has already been negatively impacted if you're struggling to pay credit card minimum payments or have had to skip them regularly or on occasion. Therefore, debt settlement is not going to have much more negative impact on your credit than your difficulty in making payments already has.
Debt settlement has some positive effects. First, it stops the calls, stops you from worrying about finances, and gives you peace of mind. With debt settlement, your balance is lowered to about 50% or less of the original amount. If these balances are satisfied, the company you choose to negotiate your settlement requires that the creditor show your account as "paid in settlement or" satisfied "on credit reports.
Within six to nine months of settlement completion, you should see your credit score begin to rise again. This is due all balances that were marked as delinquent are now at $ 0. This was what you wanted to start with, and you've met your goal. In fact, debt settlement does not send your credit rating to the basement, but delinquencies certainly do. When you settle your delinquent accounts, it's much better than filing Chapter 7 liquidation bankruptcy.
So next time you hear the so-called "experts" say that debt settlement is not the right way to go, think again. It's very likely that they simply want you to follow their program and take your money, not necessarily do what's best for you.