Solution
for Debt Settlement
Almost everyone sails into rough financial waters from time to
time. For some, circumstances and timing make navigating out of
debt almost impossible without some kind of solution beyond simply
budgeting and saving. Debt settlement is a very popular solution
among those who need to find a quick way out of their debts. Before
choosing a debt settlement plan, it’s important to weigh the
pros and cons.
Pros of Debt Settlement
Oftentimes when your creditors learn that you are engaging in a
debt settlement plan, they will work with you to negotiate at a
lesser amount to pay off your debts without the negative credit
implications. It makes more sense for the lending company to negotiate
a lower rate with you than for it to suffer a complete loss should
your debts push you into bankruptcy.
Cons of Debt Settlement
Each time you miss a scheduled payment the credit bureaus take
note. They also notice and record when you’ve negotiated a
reduced payment with a creditor. Each late payment and negotiated
repayment rate can negatively impact your credit score.
This record of late payments remains on your credit score for many
years. Future lenders use your past credit history as a guide to
determine your level of responsibility as a borrower. Future lenders
might be hesitant to lend you money if they see that you have a
history of late payments or of not paying off debts in full.
The IRS also perceives debt settlement as a type of cash gift or
income. You’ll have to report the amount waived for income
on your taxes. Depending on the state you live in, you may be required
to pay state taxes as well.
Finding your way out of debt isn’t a simple process and can
leave negative marks on your credit report. However, choosing a
debt settlement option may be the best choice depending on your
situation. Being well informed about your options can help you to
make the best decision for your situation.
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