When choosing whether to pay a credit card in full or settle, it's usually better to pay in full. But if your financial situation is such that paying the debt will jeopardize other things, like your ability to pay your mortgage or feed your family, it may be necessary to settle. Visiting a qualified credit counseling agency is free and can help you sort out your best options.
Paying Credit Cards is Better
Paying is a better option than debt settlement. According to a July 2010 article in SmartMoney, there are three major problems with debt settlement. It will hurt your credit. Having debts settled for less than you owe is a mark that stays on your credit record for seven years and signals to other creditors that you might not be a good risk. Additionally, creditors can sue. Settlement isn't bankruptcy -- creditors can choose not to settle and sue instead. Finally, debt settlement is taxable. Any forgiven balance that exceeds $600 is taxable income.
Help to Pay Credit Cards
If you can't figure out how to pay your credit card debt, you should visit a credit counseling agency. The best agencies give you a free counseling session either in person, over the phone or via email. They take information about your income, assets and debts and devise a strategy for paying off debts. A good agency can implement a debt management plan through which you pay it a set amount each month, along with a small fee, and it pays your debts. It also can negotiate down interest rates and fees. MSN Money recommends counselors from the Association of Independent Consumer Credit Counseling Agencies or the National Federation for Credit Counseling.
When Debt Settlement is Necessary
If you can not pay the debts, and your income is too high to qualify you for Chapter 7 bankruptcy, you might be a good candidate for debt settlement. Chapter 7 bankruptcy wipes out debt, while Chapter 13 requires a five-year payment plan. Debt settlement may do less damage to your credit than filing for Chapter 13. Before you can file bankruptcy, the Federal Trade Commission requires you seek credit counseling, so visit a credit counselor to learn your options.
Who Should Settle the Debts
MSN Money recommends people manage their own debt settlement rather than hire a company. Many companies collect huge amounts in fees -- up to 25 percent of the face value of the original debt -- for a service that most consumers could handle for themselves. And the debt settlement industry is known to harbor many scam artists who never discharge the debt, even after collecting fees. Most creditors will not negotiate a settlement with an account that is not delinquent, but many will negotiate with creditors with the debt payments are three to six months behind.
0 comments:
Post a Comment