Negotiating your debts can be done on your own, through a debt attorney or through a debt settlement organization. When you negotiate a debt settlement you are asking for a reduction in the cost of your debt, so you will usually have to close any accounts that you negotiate a settlement on. There are a few tips you should follow when going through debt settlement that will help you get the best arrangement possible.
Debt Settlement Companies
Some people do not feel comfortable negotiating debt on their own, so they hire a debt negotiation company to talk to creditors on their behalf. Consumers need to be aware that, as part of the solution, debt settlement companies ask clients to stop paying their debts and allow the company to work out arrangements and set up payment plans, according to Linda Sherry writing on the Consumer Action website. This can cause your accounts to go delinquent, and there is no guarantee that your creditors will agree to accept a negotiation from a debt settlement firm in the first place. If you use a debt settlement company, stay in touch with your creditors to make sure payments are being made and that a settlement was accepted.
Avoiding Settlement
Your creditors may be able to work with you on your account to help you get it current if you contact the companies when you start to miss payments. Creditors can move payments for you, agree to reduce interest debt or reduce your interest rate to help you get back on your payment schedule. This can help you to avoid having to negotiate a debt settlement that could hurt your credit score.
Stop Activity
It can seem obvious to some, but there are consumers that continue to use their credit cards even as they approach the point of needing to negotiate a settlement. A creditor is less likely to be interested in settling an account with you if you have current activity on it, according to the law offices of Matthew T. Desrochers writing on HG.org. Stop using your credit cards when you have reached the point where you can no longer pay your bills to avoid adding to your debt, and to give creditors a reason to consider negotiating with you.
Taxes
Dana Dratch on the Bankrate website points out that a debt settlement can be seen as income taxable by the federal and state governments. For example, if you have $20,000 in debt but get your creditor to settle on $10,000; then the $10,000 you saved could be considered income. Be sure to talk to a tax attorney about your debt settlement before you get started so you understand the tax implications.
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