Would You be a Good Candidate for Debt Settlement?

There’s a good reason why many people have chosen debt settlement. It’s the only way to pay off debts for less than the amounts owed. In fact, in some cases, people have been able to settle their debts for 40% or 50% of their balances. This would reduce a $2000 credit card debt to less than $1000, making it much easier to repay.

Don’t think this sounds too good to be true because it is true. It’s possible to settle some debts for much less than their balances. But there are some things you need to know about debt settlement before you leap in, and here are five of the most important.

The type of your debts

To be a good candidate for debt settlement most of your debt must be what’s called unsecured debts. Typical of these are credit card debts, past rent, a personal line of credit, department store credit cards, civil court judgments, and collection agency accounts. Federal student loan debts are unsecured debts but cannot be settled thanks to federal law. Private federal student loans can usually be settled. If most of your debt is federal student loan debt, a mortgage, an automobile, boat, or RV loan, you would not be a good candidate for debt settlement. These are secured loans and if you were to default, your lender would simply repossess that car, boat, or house.

How much you owe

You must owe at least $10,000 to be a good candidate for debt settlement, and this is another of those cases where more is better. The reason for this is one of simple mathematics. Debt settlement companies generally charge a percentage of the amount of debt being settled. Let’s say you owe $8000 on credit cards. You might be charged the minimum – 15% – or $1600. If the settlement company were able to settle that $8000 debt at 50% or $4000, you would only save $2800. At that rate, you might be better choosing another form of debt consolidation.

How patient you are

It’s important to understand that if you owe a lot of money, it will take a lot of time to settle your debts. This is true whether you hire a debt settlement company or choose DIY debt settlement. Why is this the case? It’s due to the nature of the beast. Companies will settle only if you can promise to make an immediate lump sum payment. For the sake of an example let’s suppose you owed $6000 on one credit card, $6200 on another, $7400 on a third, and $5000 on a personal line of credit. If you chose DIY debt settlement you would need to save up $2500 or so to settle that $5000 line of credit. Then, you would have to begin saving around $3000 to pay off that first debt.

With a debt settlement company, you would transfer a set amount each month to an FDIC-insured account that you manage. But, once again, you’d need to have $2500 in your account before the debt settlement company could make a settlement offer.

As you can see, debt settlement takes a certain amount of patience because it could take literally years to get all your debts settled. And, in the meantime, some of your creditors may continue to harass you.

You must owe money to the right kind of companies

We’ve never heard of a credit card issuer that won’t settle. But there are some companies that just won’t. If you choose a reputable debt settlement firm, you will be told – before you sign up – if you owe money to any companies that refuse to settle. You’ll then need to do the math to determine if professional debt settlement would save you enough money to justify its cost.

You need to understand its effect on your credit

Make no mistake about this. Debt settlement will hurt your credit. No one knows for certain how it will affect your credit score, but it’s thought it will drop it by at least 80 points. Debts that are settled will stay in your credit files for seven years. Prospective lenders will be less likely to loan you money when they see that you settled debts instead of paying them off in full. You may have a more difficult time getting credit in the future and it will cost you more – in the form of higher interest rates.

In conclusion

Debt settlement has proven to be the best way out of debt for many people. But before you choose this option, you need to consider what you have read in this article. Do the math and make sure it would be your best choice both in terms of money and your credit.

Which is a Better Way to Debt Relief — Debt Settlement or Debt Consolidation?

Looking for debt relief? Two popular ways exist to achieve it – debt consolidation and debt settlement. If you’ve been considering your options you may be wondering which of these is best. There is no easy answer to this because each has its pros and cons.

The two forms of debt consolidation

Debt consolidation can be achieved several different ways. One is to get a debt consolidation loan. If you have a good credit of 661 or above, you could do this with a personal loan. However, if you owe more than $10,000, a home equity loan or homeowner equity line of credit might be your only option.

A second way to consolidate debts is by going to a consumer counseling agency where you would be given a debt management plan (DMP). This will consolidate your unsecured debts because you would then make just one payment a month – to the consumer credit counseling agency.

The pros and cons of debt consolidation

The biggest upside of debt consolidation is that it can be done very quickly. A debt consolidation loan can usually be obtained in just a few weeks. Getting your debts consolidated with a debt management plan shouldn’t take much longer.

If you choose a debt consolidation loan, you should have a much lower payment than the total of the payments you’re currently making on your unsecured debts. This is because you would have a lower interest rate and more time to repay the loan. You would also know exactly when you will be debt-free.

Going to a consumer credit counseling agency should also mean a lower monthly payment than the total of your current payments. This is because your counselor will work with your lenders to get your interest rates reduced and any fees waived.

The biggest negative of both these options is that neither can do anything to reduce your debt. If you owed $20,000 on credit cards before debt consolidation, you would still owe $20,000. If you choose a debt consolidation loan, all you do is move your debt from one set of lenders to a new one. With consumer credit counseling you would still owe the same amount of money to the same lenders but would have better terms.

The pros and cons of debt settlement

The biggest upside of debt settlement is that It’s the only way to get debts reduced. For example, you might be able to settle a $5000 credit card debt for $2500 or less. The way this is done is by offering a one-time, lump sum payment to settle the debt.

DIY debt settlement has one big downside. You must have the cash available to make those lump-sum payments. If you’re typical, it could take you two, three, or even more years to accumulate enough money for those payments. Plus, you would have to be a very good negotiator.

These negatives are why most people choose to hire a debt settlement company. This eliminates both the need to save money for your lump sum payments, and to be a skilled negotiator.

Using a debt settlement company also means debt consolidation.This is because you would transfer a set amount of money each month to an escrow account instead, of paying your lenders.

The biggest downside to using a debt settlement company is the cost. Most charge a percentage of the amount of debt being settled. This typically ranges from 15% to 25%. However, if you owe more than $10,000, you should still save money using a debt settlement company.

When you use a debt settlement company, it generally takes from 24 to 48 months to become debt free. Another important con is what debt settlement will do to your credit. Many experts believe it will drop your credit by at least 80 points. It will also leave a stain on your credit reports for seven years. Lenders will be less likely to grant you credit in the future as they will see you settled your debts instead of repaying them in full.

In conclusion

Debt settlement is s better option than debt consolidation for most people because of its ability to get debt reduced. However, the important thing is to weigh each option’s pros and cons carefully so that you choose the one that makes the most sense given your financial circumstances.

How to Know if Debt Settlement is Right For You

Do you feel like you’re drowning in debt but are unwilling to file for bankruptcy? One good option would be debt settlement. It wouldn’t be as good as just repaying your debts, but it can give you a good, second chance.

If you’re unfamiliar with debt settlement, it’s where you negotiate with your creditors to get them to agree to let you pay less than you owe by offering a lump sum payment. While it’s possible to negotiate settlements yourself, most people choose to use a debt settlement company. The major reason for this is that it eliminates the need to have the cash available to make any lump sum payments. Instead, you would make monthly payments to the settlement company until enough cash has accumulated in your account to settle your debts.

What else you need to know about debt settlement

Debt settlement definitely has some downsides. For one thing, it will have a negative impact on your credit. Any time a lender agrees to settle a debt, a notation will be made in your credit files that the debt was settled for less than you owed. This will stay on your credit reports for seven years. In addition, your credit files will contain all those missed and late payments you had before your settlements so that your credit score will basically hit rock bottom.

Would it be right for you?

Before choosing debt settlement there are some questions you must ask yourself. The first question is this a last ditch effort? In other words, debt settlement is for people who are so far in debt they see no way out. Debt settlement should be your last alternative instead of something you choose because you think it’ll save you a few dollars. In other words, to be a good candidate for debt settlement you must be at the point where you truly can’t make any payments on your debts no matter how frugal you try to be.

Second, you must be way behind on your bills. A company will never agree to a settlement if it thinks that it can eventually get the full amount you owe. It can be really frustrating because, if you’re still able to make at least some payments, you probably won’t be granted your request for a settlement. Many creditors won’t settle a debt until it’s close to a default.

Can you take what it will do to your credit? Debt settlement we’ll have a very negative effect on your credit reports and your credit score. Think about the totality of your financial situation, and what debt settlement would do to it. Of course, your credit may already be shot if you’re carrying big balances and are way behind on your payments. While your credit score will plummet as a result of debt settlement, at least you would be debt-free again and can begin to rebuild.

Fourth, can you trust the debt settlement company? You’re in a situation where you’re desperate and vulnerable, and some less-than-legitimate companies will try to take advantage of this. In fact, you need to practice extreme caution before employing any debt settlement company.

Red flags to watch out for

The first big red flag is if the debt settlement company contacts you. Reputable settlement companies just don’t do this. Second, are you asked to pay any upfront fees? The FTC made upfront fees illegal in 2010. But there are still companies that will try to get you to pay them.

The second red flag is if the company seems anxious to take your case right away. A reputable debt settlement company won’t take just anyone. It will evaluate your situation to make sure you would be a good candidate for debt settlement. It may even help you develop a budget so that you’ll have the maximum amount of money available for your settlements.

Is the company licensed or located in the state you live in? Has it been in business for only a few months? Does its website fail to include an address? Are there multiple names on its paperwork? All these are things that can tell you something just isn’t right, or maybe your gut tells you something’s wrong. In either event, you should run the other way.

In conclusion

Don’t choose debt settlement unless you can answer “yes” to the first four questions posed in this article. Beyond this, it’s important to understand that debt settlement can be a long, complex process. If you don’t have the patience, temperament, and organizational skills to deal with this process, you’d be better off hiring a debt settlement company.

Should You Settle Zombie Debt?

You’ve undoubtedly seen at least one movie or watched a TV program about zombies. Whether they’re called zombies or the walking dead they’re all the same. They’re people who had died but then, through some miraculous happenstance, were able to force their way out of their graves to attack the living.

So, what is zombie debt? According to the website Investopedia, zombie debt is an old bad debt that you had forgotten you owed in the first place. It’s likely that whatever company you owed the money to initially has given up on it. A debt collector may have been bought your debt at a very low price and is now attempting to recover the money you owe. In other words, the debt has risen from the grave and is back to haunt you.

How a debt becomes a zombie

Let’s suppose you owed $2000 on a credit card. The card issuer made a number of attempts to collect the money. However, you either didn’t have enough money to pay or settle the debt or maybe you just chose not to. After three or four months of harassing you, the credit card company gave up and “charged off” your debt, which took it off the company’s books. After it’s six years old, the lender will stop trying to collect on your debt altogether because it’s then passed the statute of limitations. This means you’re no longer legally required to pay it.

Comes the zombie debt collector

In other cases, the lender will bundle up all its zombie debts, and sell them to a debt collector for pennies on the dollar. In fact, most collectors pay about 3% of the amount owed or $30 for a $1000 debt. Because they pay so little for these debts, they can make money if they collect just a fraction of what’s owed.

When you’re contacted

Let’s say that $2000 credit card debt was a number of years ago, and you’d totally forgotten about it. But a debt collector calls, out of the blue, and insists you pay it off. Don’t panic. It’s likely that your state’s statute of limitations has expired, and you’re no longer required to pay it.

First, ask the debt collector to provide written proof of its validity, as well as the name and address of the original creditor if the debt was resold. It should also include the last day there was activity on the debt, which is usually the date of your last payment. You have a legal right to this information per the Fair Debt Collection Practices Act (FDCPA).

Next, check with your state to determine its statute of limitations on debts. It’s five years in most states. If this is the case where you live, and the last activity on your debt was more than five years ago, you’re not legally required to pay it.

If the collector continues to harass you

Some unscrupulous collectors will continue to harass you. They may try to motivate you into paying the debt by using guilt, installing fear, or by taking advantage of your lack of knowledge. Their hope is that you’ll eventually give in, and settle the debt just to get rid of them. Never agree that the debt is yours. Also, never agree to make even a small payment to settle the debt. This would restart the clock on the statute of limitations so your debt will be valid once again, and you will owe it. The debt may even show up again in your credit reports.

To stop the harassment

If the collection agency continues to harass you, write it a letter that it cannot contact you again unless it’s by letter, or if it’s going to sue you. Assuming the debt is beyond your state’s statute of limitations, the collection agency probably won’t pursue any legal action against you.

Another important FDCPA Benefit

In addition, to protecting you from predatory debt collectors, the FDCPA offers at least two other important benefits. For one thing, you can’t be sued over any debt that’s been inactive for at least six years. And after seven years, the debt must be taken off your credit reports.

In Conclusion

if you receive a call from a debt collector regarding a very old debt, don’t panic. The odds are you’re no longer legally responsible for it. Check your state’s statute of limitations. If you find the debt has passed the date of its last activity, relax. You’re no longer legally responsible for paying it or settling it.

Can Student Loan Debts be Settled?

Borrowing money to pay for your college education seemed like a good idea at the time. And it was very easy. But now you’re out of school and those student loans are feeling more and more burdensome. You’re not alone, either. According to the Department of Education, more than one in seven people with federal student loans default within three years of when they began repayment.

You definitely would like to get out from under that burden, and you’ve heard of a thing called debt settlement. But can student loans be settled?

The simple answer to this is “maybe” and “no.”

The” maybe”

You might be able to settle your student loan debts if they are private loans. In other words, if you borrowed the money from a bank, a credit union, or some online source, you might be able to settle it. However, your lender(s) isn’t going to agree to settle just because you ask nicely. You need to be able to make the case that you’re having a financial hardship. You will need to show your current budget. You should also have a summary of your finances including all of your income, your other debts, and any liquid assets.

A lump sum payment

It’s unlikely you’ll be able to settle that loan unless you can offer a lump sum payment. For example, if you owe $21,000, you could offer a lump sum payment of $10,500 to settle the debt. This is where the “maybe” comes in as maybe you could offer a lump sum payment and maybe you couldn’t. If not, it’s very unlikely you’ll be able to settle that debt.

The “no”

The “no” is federal student loans as in “no” they can’t be settled. In fact, they can’t even be discharged in bankruptcy.

What you could do is change your method of repayment. The Department of Education now offers four income-based repayment plans. The most lenient of these is REPAYE or Revised Pay As You Earn. It caps your monthly payments at 10% of your discretionary income.

The second income-repayment plan is PAYE or Pay As You Earn. It also generally caps your payments at 10% of your discretionary income but never more than the standard 10-year repayment plan amount.

The third is Income Based Repayment or IBR. It also generally caps monthly payments at 10% of your discretionary income – if you’re a new borrower on or after July 1, 2014.

Finally, you could choose ICR or Income Contingent Repayment. With this plan, your payments would be the lesser of the following – 20% of your discretionary income, or what you would pay on a repayment plan with a fixed payment over the course of 12 years adjusted according to your income.

What this translates into

Here’s an example of what REPAYE can mean. Let’s suppose you owe $30,000 in Direct Unsubsidized loans and have a starting income of $25,000. In this case with REPAYE, your monthly payment would be $60. The term of the loan would be 20 years and you would end up paying a total of $32,358. If you’re a new borrower and choose IBR and PAYE, your monthly payment would also be $60, your term would be 20 years, and you would end up repaying a total of $39,517.

The big don’t

The big don’t is don’t default on your federal student loans. And, unfortunately, it’s easy to do this. In fact, you technically become in default the first day after you miss a payment. However, monthly default doesn’t occur until you’ve failed to make a payment for 270 days.

The consequences can be severe

The reason you don’t want to default on a federal student loan is because the consequences can be severe. For one thing, your entire unpaid balance and any interest will become immediately due and payable. Your loan will be assigned to a collection agency, and you’ll lose your eligibility for any more federal student aid and for forbearance, deferment, and other repayment plans. Your credit rating will be seriously damaged, and you may lose your federal and state income tax refunds. Worst of all, your employer could be required to withhold money from your paychecks and send it to the government.

In conclusion

If you have student loan debts, the best thing you can do is repay them. If they were private loans, you might be able to settle them, but only if you’re prepared to make a fairly hefty lump-sum payment. And while federal student loan debts can’t be settled, repayment options are available that might make it easier for you to pay them off. But make sure you do something or you could go into default, and that is something you definitely don’t want to happen.

How to Negotiate and Settle Your Debts

Is it possible to negotiate and settle a $15,500 line of credit for only $3200! We know of one woman who was able to do just this. But the way she negotiated wasn’t what you might guess as she never used the telephone. She did all her negotiating by letter and fax.

Debts that can and can’t be settled

Did you buy a big home you can’t afford, a luxury car, or a boat or mobile home? The sad news is that these debts cannot be negotiated. If you’re living in a home you can’t really afford, you have only one option – to sell it and downsize.

Debts that can be negotiated include personal lines of credit, credit card debts, department store credit card debts, and old judgments, in other words unsecured debts.

Negotiating your debts

If the stress of dealing with your debts is so severe that it’s actually damaging your health, you need to get busy and start negotiating with your creditors. Despite what you might think it’s best to do it by letter as this gives you an indisputable record of your offers and how lenders’ responses.

You need to first prioritize your debts. The easiest ones to pay off will be the ones with the smallest balances, so put them at the top of your list. Next, call your lenders to get contact information – that is who you should write, her, or his title, their address and phone number and fax number.

Always have a goal

Never begin negotiating with a lender without having a goal. In the case of a credit card debt, there are four things that can be negotiated. You can negotiate to have your interest rate reduced, to have your payments waived for several months, to have your debt converted into a payment plan, or to have your balance reduced.

You may want to have a different goal for different debts. If you owe a lot on a credit card, your goal might be to get your balance reduced by settling the debt. Do you have a personal line of credit that’s choking you? Then, your goal might be to get your interest rate reduced, so you’d have lower monthly payments.

The important thing is to set a goal for each of the debts you’ll be negotiating.

If your goal is to get your interest lowered

If this is the case, you will need to be ready to give the reasons why you need to have your interest rate reduced. This could be that you’re a long time customer, you have a good credit history with them, or that you like doing business with the company and would rather stay with it instead of having to go to a different credit provider. And you must be ready to make your case – whichever is your point – because it won’t necessarily be self-evident to your lender.

If your goal is to settle a debt

If your goal is to settle a debt, the first letter you send to your unsecured lenders should be very blunt. You need to state that you need to settle the deb, andthe amount you’re willing to pay. You should make it clear that lender refuses to settle on your terms, your only option will be to file for bankruptcy. Be sure to end the letter by requesting a response in writing.

Always start low

This first settlement offer should also be almost ridiculously low. For example, if you owe $5800 on a credit card, you might offer to settle the debt for $800. No credit card company will accept an offer this low, but it’s a place to start. What will happen instead is that the lender may counter at, say, $5000. The point here is to start low because once you name a number you can’t go any lower. When a lender responds – either by letter or fax – you can then make a counter offer, and so on until you arrive at an acceptable figure.

Negotiating with lenders is not for the spineless

It’s important to understand that negotiating your debts will take time and more than a small amount of intestinal fortitude. Some people are just not cut out for debt negotiation. You need to be quick on your feet mentally, and have a strong spine. Your lenders won’t just roll over. They will definitely push back. They’ll be tough and you’ll need to be tough, too. If you don’t feel you fit this profile, you might be better off using a debt settlement company such as National Debt Relief to negotiate settlements for you.

3 Signs You May Be Dealing with an Evil Debt Settlement Company

Debt settlement is a very useful tool for paying off a large amount of debt. In fact, over the past eight years it has become the most popular way to deal with out-of-control debt as it’s the only way to get debts paid off for less than their balances.

Unfortunately, some unethical people have set up companies whose only purpose is to take advantage of people that are desperate to get their debts under control and paid off. In many cases these companies just make their customers’ debt problems worse instead of better. As an example of this, the Federal Trade Commission (FTC) recently sued three Dallas-based debt settlement companies, and the Minnesota Department of Commerce has fined the company One Source Management $20,000 as it was charging its customers huge fees without providing any services.

If it contacted you

Unethical debt settlement companies find lists of people that are debt strapped and then contact them looking for work. The good debt settlement companies simply don’t do this. You can find them online but you must contact them first. So, if you receive a call from a debt settlement company it’s probably best to just hang up.

A big upfront fee?

If you’re seriously in debt, there is a lot of money involved. Before you sign up with a debt settlement company there are some signs to watch out for. The bankruptcy lawyer, Theodore W Connelly, has said that there are things that are sure tip-off’s when you first talk to any debt settlement company. The first is that if there should be no upfront fee.

FTC regulators formerly used $75 as their benchmark for an upfront fee believing it’s unreasonable to charge more than $75 to someone who’s already having money troubles. However, it changed the law a few years ago and now the ethical for-profit debt settlement companies just don’t charge anything upfront.

The unfortunate fact is that there are many debt settlement companies that have scammed their customers out of literally thousands of dollars, which has put a black eye on the entire industry.

The initial meeting

If you contact a debt settlement company and your initial meeting with its representative lasts for less than an hour, that’s a definite danger sign. This means the person on the other end of the line isn’t giving you her or his full attention, which is a sign that the company isn’t very serious about your situation.

What’s scary is if your debt situation is so bad you’ve contacted a debt settlement company you’re probably fairly desperate. When this is the, case you may believe anything you’re told. Plus, crooks never act like crooks. The settlement company’s representative might spend as much as an hour going over your finances and pretending he cares about your situation. But if the company seems to be trying to strong-arm you into signing up or telling you that it will make all your money problems vanish – just walk away.

Before you sign anything

Don’t sign anything with a debt settlement company until you’ve gotten on Google to check its credentials. This should give you a good idea as to how many years it’s been in business and not just months. Maybe this is obvious but the more years it’s been in business, the better. Also, be sure to look for negative comments or any complaints that were filed about the company. Even the best debt settlement companies have had some complaints because that’s just the nature of the business. But if you find the company has had multiple complaints this is a very bad sign.

You should try to settle on a couple of companies you think you’d like to work with. Then contact your state’s attorney general’s office to see if there have been any complaints about them.

All of this will take some time but isn’t it better to lose your time rather and not a lot of money?

Check out the alternatives

You might also check out the alternatives to debt settlement before choosing it. For example, if you have a decent credit score you should be able to get a debt consolidation loan and use the money to pay off all of your unsecured debts like credit card debts. You should then have a lower monthly payment than the sum of the payments you’re currently making, plus you’d only have one payment to make a month.

A second alternative is what’s called a consumer credit counseling agency. If you choose one of these services it will work with your lenders to get your interest rates reduced, which will result in a lower monthly payment making it easier for you to manage it.

Are most of your debts credit card debts? In this case, you could do a balance transfer to a new card with a much lower interest rate. Or, if you have really good credit, you might qualify for a 0% interest balance transfer card where you’d have as many as 18 or even 21 months’ interest free. This could be enough time for you to pay off the entire balance on the new card.

Understanding When Debt Settlement’s a Good Idea

Debt settlement has become a very popular way to deal with large amounts of debt. But would you be a good candidate for this option?

One website defines a good candidate for debt settlement is a person that’s looking for quick debt relief, that has a large amount of unsecured debts and doesn’t want to have to file for bankruptcy.

So how do you stack up against these criteria?

What are unsecured debts?

The simplest explanation of unsecured debts is those debts where you were not required to use any kind of an asset as collateral. For example, credit card debts are unsecured debts as are personal loans, personal lines of credit, medical bills and department store credit card bills.

In comparison, mortgages and auto loans are secured debts because they’re secured by your house or your car.

How much unsecured debt do you have?

Some companies say you need to have only $8000 in unsecured debts to be a good candidate for debt settlement. However, this is a case where the more you owe the more debt settlement can help. In fact, the people who get the most benefits from debt settlement generally owe $20,000, $30,000 or even more.

The two types of debt settlement

The two types of debt settlement are DIY debt settlement and using a debt settlement company.

DIY debt settlement is cheaper than hiring debt settlement because these companies charge for their services. If you are able to settle your debts yourself, there’s no cost involved.

How much debt settlement companies charge for their services varies. However, most charge a percentage of the debt they’re settling. This generally ranges from 15% to 25%.

How the two are different

Both DIY debt settlement and using a debt settlement company have the same goal – to settle your debts for less than you owe. However, they use two different approaches. If you choose DIY debt settlement, it’s you that will be contacting your lenders and you’ll need to have enough cash on hand to pay for any settlement you negotiate.
In comparison, if you use a debt settlement company it will contact your lenders for you. And instead of having to make cash payments to your lenders you’ll send money every month to an FDIC-insured, escrow-type of account that you control. You’ll continue to do this until all of your debts have been settled, which typically takes from 24 to 48 months.

The cons of DIY debt settlement

You’ve already read the biggest con of DIY debt settlement which is that thing about needing to have the cash available to pay for any settlements you negotiate. Saving up enough money to pay for just one settlement can take several months and it can take literally years to accumulate enough cash to pay off all your debts through settlements. And all the time you’re saving money to cover your settlements your interest charges will continue to grow and some of your debts may be sold to debt collectors.

Both will damage your credit score

Both these options have their downsides. The first is what debt settlement will do to your credit score, which is damage it severely. The reason for this is that debts that have been settled are reported to the credit bureaus as “settled for less than full amount due” or some similar wording instead of as “paid in full”. This could reduce your credit score by as many as 80 points. Of course, if you’re four or months behind on your bills, your credit has already been seriously damaged.

Second, whether you choose to settle your debts yourself or use a debt settlement company, there can be income tax implications. When a creditor writes off part of your debt settlement, the money may be reported to the IRS as income. This could or couldn’t have an effect on your income taxes depending on other factors such as your earnings and your deductions.

The biggest con of hiring a debt settlement company

You’ve also read the biggest con of this option, which is that debt settlement companies will cost you. However, using one of these firms can still save you money. Here’s an example: Let’s suppose you owe $12,000 and the settlement firm is able to settle these debts at 50% or $6000. Also, supposing it charges a 20% fee or $2400 you would still save $3600., Plus, you’d be free from the frustration and headaches of having to deal with your lenders and maybe with bad-tempered debt collectors.

Which of these options would be best for you is something that only you can decide. But most people choose to use a debt settlement company for the reasons you’ve read – fixed monthly payments and not having to negotiate debts themselves, which can be frustrating and very time-consuming.