Yes, some creditors may be willing agree to a debt settlement, but doing so isn’t always the right strategy for everyone. Make sure you weigh all the pros and cons to get the best results for your situation.
DIY vs. debt settlement programs
Most people consider signing up for a debt settlement program because they aren’t sure where to begin with wiping out credit card debt and other bills. Using one of these services usually requires you to make payments into an account with the firm for a period of two to three years, and the funds that accumulate are used to pay off debt.
While some debt settlement programs do exactly what they advertise, there are many accounts of consumers being duped and left with unpaid bills. Research any debt settlement program you are considering to make sure it is reputable and has a good track record.
Savvy consumers should be able to skip the middleman–a debt counseling firm–and negotiate a debt settlement directly with creditors. It may take several attempts to reach the individual who is authorized to approve a deal, so it pays to be persistent. Also, don’t expect to get a debt settlement unless you are at least two months behind on your payments.
Pros and cons for debt settlement
The upside to settling debt is that you can get a portion of your credit card debt wiped out. In some situations creditors may be willing to waive up to 50 percent or more of your debt. Generally, you’ll need to offer up some sort of lump sum payment, but there may be situations where a payment plan might be set up. But paying off a smaller percentage of debt can lessen the amount of interest paid out over time.
The downside to striking a deal is that you may still owe taxes on the forgiven debt. If you owe a significant amount of debt, talk with a tax adviser to get an idea of how big the tax hit may be.
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Chris Rocks is the Regional Director of the National Credit Federation (NCF). NCF is a nationwide membership-based organization that assists consumers recovering from a financial difficulty and those who need a significant increase in their credit score.
Chris began his financial services career as a Financial Advisor helping young families with risk management and asset accumulation strategies. It was during that time that Chris realized that many of these young families also needed someone to guide their choices with regards to debt management.
He made the transition into the mortgage industry where he first worked as a loan originator and later the Vice President of a small mortgage company. As Chris came across clients who had suffered through financial challenges and saw the difficulty they had in re-entering our credit driven economy, he discovered there was a real opportunity to leverage his unique background and help others.
He can be contacted by visiting his personal site, GoodCreditLiving.com.
Francine L. Huff is the Publisher and Editorial Director of Super Savvy Publishing, LLC, which provides editorial and publishing services. She is a gifted author, freelance journalist, and motivational speaker who has entertained and motivated a variety of audiences through workshops, panels and keynote addresses. Francine is the author of The 25-Day Money Makeover for Women, which has inspired and motivated many readers to rein in poor financial habits, become good stewards over their money and work toward a debt-free life. She has appeared on a variety of TV and radio shows. Francine previously worked for the Wall Street Journal, where she was the spot news bureau chief, a news editor and a copy editor. She has interviewed a variety of financial professionals about financial issues and strives to present information about managing money in an easy-to-understand format that is accessible to people of all backgrounds and income levels.
Karen Lawson is a freelance writer with more than 15 years of experience working in mortgage banking and loan servicing. She holds BA and MA degrees in English from the University of Nevada, Reno. She enjoys writing informative articles about debt management and personal finance.