No matter how hard you might try, it's virtually impossible to avoid advertisements from debt settlement companies. These companies, who promise to negotiate a debt settlement for less than you currently owe, are part of an industry that has seen enormous growth in the past decade. However, you don't need to contract with any of these companies---you can create your own settlement with your creditors.
Why Do It Yourself?
There are countless companies that are willing to help you get out of debt. All of them claim that they are trustworthy and reliable. However, the truth is that it's very hard to know who to trust. In 2010, USA Today reported on a woman who entrusted her hopes of a debt-free life to a settlement company. The firm didn't do any work on the woman's behalf, but that didn't stop the company from taking nearly $7,000 in fees. While some settlement companies are reputable, there is always a chance that you could get burned by relying on an outside source.
Before the Settlement
If you have an excellent credit history, you might want to think twice about debt settlement. The process is sure to significantly harm your credit score. Since creditors have no incentive to settle with people who are current on their payments, you will have to fall behind on your bills in order to get your creditors to even begin thinking about a settlement. Doing this will lead to late fees and negative marks on your credit score. However, skipping your payments will help you to save the money necessary to settle your debts.
Negotiating a Settlement
Despite their claims, debt settlement companies don't do anything that you can't do yourself. A debt settlement group's main purpose is to haggle with your creditors over a settlement amount, which you can do on your own. You don't get the benefit of expert knowledge, but you can always try on your own before paying someone else. Mint.com suggests making your first offer a settlement of 25 percent of your current balance, which will likely be rejected. However, it's a starting point for the remainder of your negotiations. After all, as long as you end up paying less than 100 percent, you're making progress.
After the Settlement
When you agree to a settlement amount with your creditors, you're not done with the settlement process just yet. First, you must pay taxes on any amount that was less than your balance at the time of settlement. In addition, you will have to deal with the fallout regarding your credit score. Your credit report will show that you settled for less than what you owed, which is a huge negative mark on your credit file. This may impact your ability to obtain credit for the next seven years, and it could also hurt your chances of getting an apartment or job.
0 comments:
Post a Comment