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Make Debt Negotiating Work for You.
Tags: business, credit card debt negotiations, debt negotiation, debt settlement, debt", family, finances, Financial Advice, home, Marriage, Personal Finances
When you first look at debt negotiation is looks like a quick easy way to get rid of your debt. But before you take the leap and do it, or hire out to get it done, you need to understand the process and what will benefit you and be bad for you.
Most people hire a debt settlement company to do the dirty work for them. The first process they will do is have you stop making any payments toward your debts. Instead, the company will set up a trust account for you to put your payments into. Then once the account has enough money (between 25-50% of the total debt you owe) the company will begin negotiating a payoff amount with your creditors. Typically this amount will be no more than the cash you have already accumulated in their trust account. Once an amount is settled on, the company will pay the debt off in one lump sum.
There are a few benefits to debt negotiation, the biggest and most obvious being that you don’t have to pay as much back as you owe, but these and other benefits are different for everyone. You must be at least 3 months behind in order for a creditor to even consider debt negotiation with you. You credit will take a hit for the debt forgiveness. And you will have to pay taxes on the forgiven amount. But if you are considering bankruptcy as the other option, this is by far the better choice as it doesn’t trail you your whole life & the ding on your credit won’t be as bad. One other benefit of debt negotiation is that if you use a company to do it for you, you can turn all your collector calls to them because they are working on your behalf and that can reduce the stress for you.
This process has some drawbacks. First of all, you will owe the debt negotiation company a fee, usually 20% of the forgiven debt. Second of all, as you pay into the trust and stop making payments to your creditors, your credit score reflects your late payments and delinquency. You may even be sued by your creditors. Once the debt has been forgiven, you will be expected to pay income taxes on the forgiven debt. For example, if you only pay 50% of your $20,000 debt, you will be expected to pay taxes on the remaining $10,000 of forgiven debt. Finally, settled debts are almost always reported as “settled” or “paid as agreed” on your credit report. Both of these statuses reflect negatively on your credit score.
Weigh the options carefully and then decide whether debt negotiation is right for you.
This is negotiating debts a good idea. How to make the most of a terrible situation.
