Arranging a debt resolution or debt settlement agreement is a complex process that requires expert knowledge of loan services, credit ratings, and taxes. It’s also a nuanced process that requires excellent negotiation skills.
Given the delicacy and urgency of the process, you need a reputable debt resolution and debt settlement agency to keep the process on track until you make all your debt payments.
Why Should You Work With a Company to Resolve Your Debts Instead of Doing it Yourself?
Debt settlement companies charge a fee for their services, but that’s usually nothing compared to the relief you get when debt settlement providers take charge of all your debt from several credit cards, accounts, and other sources.
Managing debt is stressful, and it’s easy to miss a payment or two accidentally. A debt settlement company ensures that doesn’t happen.
What are the Benefits of Debt Settlement?
Debt settlement has many advantages on its own and when compared to the alternative, which is bankruptcy.
Relief When You’re Drowning In Debt
The point of debt relief is to lessen the amount of money you owe to creditors and to pay it off more quickly than other debt-relief options. Many creditors will accept a lump-sum payment as opposed to a monthly payment schedule.
According to the American Fair Credit Council, people who use a debt settlement program can save up to 50% of their original debt amount, this includes enormous savings on interest.
Debt settlement is a lifeline when your financial situation is so dire that you’re considering filing for bankruptcy.
Your credit score will indeed drop when you implement a debt settlement plan, but it won’t drop nearly as much as bankruptcy, and it won’t remain affected for as long. Debt settlement negatively impacts your credit score for up to seven years, while bankruptcy can last for ten or more years.
Your credit score is not the only thing to take a knock. Bad debt affects all future applications, including credit cards, personal loans, and even job applications. It also demonstrates a lack of management skills.
However, working with a debt relief provider shows dedication and responsibility, and payment history.
Avoid Debt Collection
As you’re taking action and have been in touch with your creditors, you’ll likely be spared persistent calls from debt collectors or debt collection agencies. This takes some of the stress out of the situation because you aren’t being harassed by phone calls constantly reminding you of your precarious financial position.
Avoid Being Sued
Again, that you’re taking action with a debt relief company can be enough for creditors to let the debt settlement process run. Furthermore, civil cases can drag on and cost both parties a fortune in lawyers’ fees. Creditors may be happier to cut their losses and accept a partial payment than no payment at all.
Note that creditors aren’t obligated to accept your offer. They can refuse or offer payment plans that are still out of reach.
Shorten the Payment Period
Many debtors pay the minimum amount, which means they’re paying the interest and aren’t making a dent in the original loan. You’re stuck in debt, which increases insidiously.
Settling just 30% of your debt will free you from minimum payments and remove additional interest and fees.
Your debt settlement service provider will negotiate favorable terms, which could be a single payment that is 40% of the outstanding balance or four quarterly interest-free payments. It’s up to the creditor to decide the amount and manner of payment.
What is the Impact of Debt Settlement?
It has a positive effect on your financial situation, especially your financial future. Once all your debt has been settled, you’ll be eligible for financial products and lending services that were closed to you before.
With the success of debt settlement programs, you won’t have the stigma of bankruptcy following you for the rest of your life, having a negative effect on your financial future.
A couple of things to bear in mind. First, debt settlement will have an impact on your credit score, particularly in the beginning stages, but your credit rating will improve as the outstanding debt decreases.
Second, it has tax consequences. You must notify the Internal Revenue Service (IRS) if the debt is reduced by more than $600. The reduced amount is taxable income.
For example, Jim owes Company B $15,000 and gets a reduction in debt of $7000. The $8000 reduction is taxable. However, $8000 minus tax is still a notably reduced debt, which is what we’re aiming for.
What Should Be Your First Step if You’re Considering Debt Settlement?
The first step when considering debt settlement is to choose the company with the best debt settlement and debt consolidation programs available. You need as much information as possible to make an informed decision. After all, your financial future is on the line.
Choose a Company Who Cares
- Research different companies and ensure they’re licensed. Industry regulations bind legitimate debt settlement companies to protect consumers.
- Don’t be in a hurry, take your time and use the tools available, including the Better Business Bureau, the federal Consumer Financial Protection Bureau (CFPB), and the state attorney general’s office.
- Determine all the costs, including their fee and fees likely to be demanded by individual creditors.
This is a good time to find out how debt settlement affects tax liability. Consult a tax professional to discuss why forgiven debt is considered taxable income.
- Review your finances to see if you can afford the monthly payments for at least two years. Delinquent payments will undo the work you’ve done.
- Get a timeframe so you have an accurate view of how regular payments will affect your annual budget. Most debt settlement processes take two to four years.
- Make your final decision about the debt settlement firm you’re going to use.
- Make sure that you understand everything involved in debt relief agreements. Ask questions if necessary.
Let Alleviate Financial Solutions Plan Your Debt Settle Programs
Alleviate Financial Solutions prides itself on its transparency. There are no hidden costs, no settlement surprises, or false promises.
We keep lines of communication open, so you know where we are in the debt management plan. Our consultants’ expertise will put you on the road to financial freedom.