Personal debt isn’t a pretty thing. If your resources are stretched thin and the pressure of monthly payments keeps pounding down on you, it can get difficult to make ends meet. We are only recently coming out of one of the worst financial disasters of the century. In an economic mayhem of such magnitude there was bound to be some collateral damage to ordinary citizens. If you are one of the many people stuck in a financial limbo, you should give serious consideration to debt settlement services.
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Debt settlement is an old concept. Lenders often “settle” debt that they sense is about to go “bad”. “Bad debt” is debt that creditors cannot recover because the debtors file for Chapter 7 or Chapter 13 bankruptcy. The creditors end up losing all their money.
To avoid this, many lending agencies go in for debt settlement. Debt settlement is a negotiation in which both the creditor and the debtor mutually agree upon an easier way to manage the debt. Settlement could present itself as smaller monthly payments, longer time to repay the loan or a forthright reduction of debt by “writing off” a part of it. This is done to ensure that the creditor gets a recovery of the loan and that the debtor is not pushed into bankruptcy, in which case the creditor loses all the money anyway.
To handle debt settlement, there are many debt settlement services that you can avail yourself of. These maybe in the form of debt settlement companies that negotiate with the creditor on your behalf or in the form of debt settlement programs that help you in securing the maximum “write off” on your loan – these programs may be paid-for or DIY. No matter which debt settlement service you choose, it is best you keep the following things in mind before settling on any service:
1. Don’t fall for promises: Always keep in mind that no debt settlement service can guarantee a settlement. The final arbiter on whether or not you will have any respite from your debt is the lending agency. The agency considers a lot of things like level of security attached to a debt, duration and size of the debt and the financial health assessment of the debtor. A debt settlement service that promises definite results is probably making dubious claims since there is no way that each case that comes for debt settlement will end up getting a settlement. Be a skeptic.
2. Don’t be fleeced: There is a reasonable chance that you are desperate to get the loan’s burden off your head. It is a common sentiment. And one that is cashed in upon frequently. Debt settlement services come in all shapes and sizes including ones that are available online free of charge. However, should you choose to purchase a debt settlement service, be sure not to pay a large amount upfront before the settlement is achieved. Preferably go for a debt settlement service that will only ask for a small amount before the settlement with a commission at the end of the settlement calculated on the amount of debt waived through the service.
3. Know the laws: Remember – the large print “giveth”, the fine print “taketh” away. Before engaging with any debt settlement service be sure to read the terms and conditions of the service. This should go without saying, but you’d be surprised at the number of people who don’t do this. In all matters monetary, measure the offer with utmost care. Especially with the debt settlement service you choose, ensure that the service has a strong legal rooting and understanding of the credit market. Speak to your lawyer if you think that a service provider can’t be trusted.
4. Do your taxes: Debt settlement has varying consequences. Despite the mutual understanding between you and your creditor, a debt settlement will reflect negatively on your credit history. Further, you may have to disclose the waived debt to the IRS as taxable income. These regulations change on a case-to-case basis, so you need guidance from someone in the know.
While selecting your debt settlement service, look for one that provides support in repairing your credit record and explains to you the tax implications of your settlement. Once a settlement is achieved, it is best to get through it completely by updating your tax files and rebuilding your credibility.