Borrowers who are heavily in debt and find themselves unable to repay their full credit card balances will often look up debt settlement information (or debt arbitration and debt negotiation information) as an alternative to bankruptcy.
Debt Settlement Explained In debt settlement, the credit card company or collection agency will settle for a reduce balance, usually thirty-five to fifty percent of the original debt.
When the settlement is approved by the creditor, the borrower will need to repay all of the reduced debt at once, or in many cases will have to set up a repayment plan, much like a debt management plan, to repay the reduced credit.
The Costs of Debt Settlement Individuals can either negotiate themselves or enlist the assistance of a professional organization who will charge for the service.
Some companies will require that a fee be paid up front, others will take a part of the monthly repayment amount, and others will take their fee only once the settlement has been approved.
The recommended method and amount is for companies to get paid a percentage of the reduced debt amount on the back-end.
Debt Management As a debt management strategy, settlement is not recommended.
There are several reasons for this, such as a reduced credit score.
As well, settlements deal only with credit card debt, not student loan debt or car loan debt, and especially not mortgages or domestic judgements.
Since debt management takes the full spectrum of credit into account, relying on a settlement only takes part of the debt problems into account.
Tax Implications When digging through debt settlement information, borrowers who decide to take this avenue should understand that there are tax implications to settlement.
The bottom line here is that creditors will issue a 1099-C that the borrower will include when they file their taxes.
The amount included as taxable income is the amount that the creditor agreed to reduce.
As such, settlement may not be as attractive as bankruptcy options.
Given the volume of debt settlement information available, it is no wonder why so many borrowers get confused or misleading information.
A lot of these companies are unregulated and feel they can capitalize on what has been turning out to be the worst economic slowdown we have seen in decades.
As a debt management strategy, debt settlement does not make much sense unless all, or almost all existing debt consists of credit card debt.
Debt Settlement Explained In debt settlement, the credit card company or collection agency will settle for a reduce balance, usually thirty-five to fifty percent of the original debt.
When the settlement is approved by the creditor, the borrower will need to repay all of the reduced debt at once, or in many cases will have to set up a repayment plan, much like a debt management plan, to repay the reduced credit.
The Costs of Debt Settlement Individuals can either negotiate themselves or enlist the assistance of a professional organization who will charge for the service.
Some companies will require that a fee be paid up front, others will take a part of the monthly repayment amount, and others will take their fee only once the settlement has been approved.
The recommended method and amount is for companies to get paid a percentage of the reduced debt amount on the back-end.
Debt Management As a debt management strategy, settlement is not recommended.
There are several reasons for this, such as a reduced credit score.
As well, settlements deal only with credit card debt, not student loan debt or car loan debt, and especially not mortgages or domestic judgements.
Since debt management takes the full spectrum of credit into account, relying on a settlement only takes part of the debt problems into account.
Tax Implications When digging through debt settlement information, borrowers who decide to take this avenue should understand that there are tax implications to settlement.
The bottom line here is that creditors will issue a 1099-C that the borrower will include when they file their taxes.
The amount included as taxable income is the amount that the creditor agreed to reduce.
As such, settlement may not be as attractive as bankruptcy options.
Given the volume of debt settlement information available, it is no wonder why so many borrowers get confused or misleading information.
A lot of these companies are unregulated and feel they can capitalize on what has been turning out to be the worst economic slowdown we have seen in decades.
As a debt management strategy, debt settlement does not make much sense unless all, or almost all existing debt consists of credit card debt.
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