Debt settlement companies are currently booming in the USA. The reason behind the success of debt settlement firms is evident from the latest statistics that claim that the average credit card debt per household amounts to around $15,000. So it is pretty simple to understand why debt settlement companies are prospering these days. However, you need to know exactly how a debt settlement company is proposing to help you mitigate or eliminate your debt burden. It is always a good idea to know exactly what services they would be offering you, before you contact them.
Consider Settled Debt as Income
According to the IRS, anything that has been settled is actually money earned. This is probably the most vital thing that you should know about debt settlement. Debt settlement is regarded as income and you are supposed to receive 1099 for it according to debt settlement experts.
One of the first things you would need to know is that all settled debts are considered as money earned by the IRS. This has to be included under income on any tax forms you fill. This could mean that all that you saved could actually be offset by taxes which you must pay. Not to mention the fact that most debt settlement companies charge for counsel and service. The hefty fees will eat right out of your savings too.
Debt Settlement May Not Have the Credit Impact You Expected
The issue with debt settlement is that even though it does get rid of most debts, but if the scheme isn’t executed properly by you, your credit score takes a hit. If you are late on your payments it is reported. Further, if you opt for settling a debt, it will be reported as a debt which has not been paid in full. While this may be your only option, it will be taken into consideration when you apply for credit in the future, and will not bode well for you. It is important for you to gather all the facts you can by reading debt settlement reviews so that you can make an informed decision.
The main issue with debt settlement is actually, it compels the consumer to not comply with the terms and conditions attached to the original loan. The very basis of debt settlement is that consumers borrow some money and then pay it back not on the prior agreed terms, but on completely different terms. This is undoubtedly, a bad strategy.
According to some finance experts, it is better to negotiate with any third-party debt collector directly over the phone. They are always ready to get involved in some serious negotiation particularly, if the debt is really very old. While negotiating in this manner, you could put in a request for removing the negative collection from all your credit reports. This should be written in your agreement before any money is paid.
The fact remains that the bank is not at all interested in any sort of negotiations. They are just bothered about you repaying the amount you had borrowed. In most cases they do not bother to even engage you. Moreover, if you manage to negotiate a settlement, your credit score takes the battering and is seriously damaged. This negative impact is very much demonstrated on your credit score and is found on your credit report for many years. During that period, you would not be qualified to apply for any fresh loans. So, do not consider buying a car or a house.
So, when do you think debt settlement could be a good idea? Some individuals might be facing legal consequences and need to go to court. In such cases it could be beneficial to go for settlement at that particular time. However, it could prove to be a risky prospect.
Author Bio: Ronald Rockford is a financial expert working as a debt settlement consultant in the private sector. He has been actively involved in the industry for the past five years and is also into blogging.