Getting any kind of debt settlement offer might feel like that lifetime if you are drowning in the unpaid bills. But, if you end up settling for less than what you owe, there are some serious downsides for that too. You might have to work hard in making some immediate payment in full and then might face tax based consequences. That is the reason why experts will often recommend this task of debt settlement to be the last-minute resort. Before you consider any of the debt settlement offers, there are some points to it.
More about the debt settlement offer:
In case you have a more significant amount of current outstanding debt with collection agency or creditor, you can sometimes receive an offer for settling that debt. To some people, debt settlement is more like debt relief, where the creditor’s proposals to reduce the principal amount that you owe on debt. Sometimes, you might contact the creditor and just request to settle. But, it is possible for you to receive an offer without asking anything. This will mainly take place when you have missed multiple payments and cannot afford to pay balance even when the exact timeline varies.
Whenever the creditor concludes that it is unlikely that you are going to pay for it entirely, the next step is mainly to collect as much as possible for mitigating the loss. As per some other experts, creditors will settle accounts for less than account owed. However, he further notes that debt settlement is not meant for everyone, especially not for every situation. You should get debt settlement feedback before making any final move over here.
Ways to evaluate the debt settlement offer:
There is no such rulebook that can define what makes a good debt based settlement offer. If you are happy with the offer, you can go with it as it is less than what you owe the team. Then you can try to consider it at least once. There is an alternative to it, where the creditor can either outsource debt to a collector or just sue you.
- In case of any settlement that might require you to pay somewhat around 40 to 60% of debt is quite good. There are sometimes when the settlement amount depends on how the creditor is likely to believe it might help in recovering the money.
- As debt settlement is one binding contract, it is often a good idea to just go through the terms carefully and get a lawyer to review it before signing the line. You might be prepared to pay settlement right away as per the terms agreed on.
- No matter whatever the reason or situation might be getting all the agreements in writing can be a magnificent part of the term settlement. The very last thing you want is any kind of misunderstanding about the situation, and that’s what you get through proper communicating skills.
Negotiate for the debt settlement offer:
Just because you have received an offer for settling debt it does not mean you have no other option but to accept it. You can always ask for any better deal if you want to. Whether you are going to get it or not, that is up to you. On the other hand, if you cannot settle for less, a creditor might try to report debt paid quite in full rather than just ending in exchange for just accepting the offer.
If you ever decide to negotiate, you might do your part of everyday research to understand everything, right from collection cycles to tax based implications and more. On the other hand, you have to be prepared in discussing financial hardship and provide documentation. Make sure to conduct everything in writing.
Can debt settlement be one good idea?
While the debt settlement might allow borrowers to get out from underneath any larger debt without paying in full, there is always a significant caveat. One thing that people fail to realize is that debt settlement can mostly lead to the taxable event.
- Forgiven debt is mainly considered as income. So, in case the arrangement forgives $600 or more debt, the creditor might issue Form 1099 C, and that should be reported as income on taxes. The only way you can actually avoid taxation is by proving insolvency on charges or even on file bankruptcy.
- Always remember that debt settlement can prove to be detrimental to credit. A debt, which is reported to credit bureaus than original amount can be impactful as having a bankruptcy on record. Best, it is easier to have any account report marked as unpaid. Once you have reached the point, where you have already been offered a settlement, you might have done some significant damages to the credit score.
Some alternatives for you to follow:
For some of the reasons as mentioned above, you might sometimes want to pursue another option other than debt settlement, if you can go for it. For the first step, you can often try to pay the debt in full. If you can pay down outstanding debt in full, it is the best possible thing to do. For that, you can follow either the Debt Avalanche method or can head towards debt snowball method.
If you want, you can even try to take a debt consolidation loan for a change. In case you have higher interest rates, it can always be helpful to consolidate loan or credit card debt into a single loan at lower interest rates. Here, you get the chance to allocate more of the budget right towards principal balance on debt other than interest. Moreover, you will just have one monthly payment to just worry about.
Get to seek credit counseling:
Another primary option to use over here is an accredited credit counselor for creating that debt management plan. Often termed as DMP, a credit counselor will always work with you and creditors just to come up with a reasonable form of the payment schedule. DMP might help in getting finances organized and allows the agency to make debt payments right on your behalf. Some introductory credit counseling services are free, but DMP charges a fee.
