Tips on Debt Settlement

Have you found yourself “over your head” in credit card debt? If so, debt settlement may be a good solution. It can slash a large percentage off of what you owe so that you can make your payments and avoid bankruptcy. But before you start contacting your creditors to negotiate, there is some information you should know first.

You should be aware that debt settlement should only be used if you are truly desperate and would have to file bankruptcy without it. Although debt settlement can drastically reduce the amounts you owe, it costs you in other ways. Forgiven debt is considered a form of income, so you will have to pay taxes on it. And even though a settled debt looks much better on your credit report than a bankruptcy, it will still be detrimental to your scores.

One of the most important things to know is that you should never attempt to negotiate your debt with any third-party collectors that may be handling your accounts. Debt settlement should be between you and the original creditor only.

Contact your creditors and inform them that you cannot possibly pay what you currently owe, and that if they won’t reduce your debt, you may be forced to file for bankruptcy. The credit card companies will probably take you seriously if you mention bankruptcy since they would rather get some of their money back from you than none.

If you are currently making payments on your account, you will have to stop if you wish to settle the debt. Creditors won’t consider settlement unless your account is seriously past due.

Proper documentation is important during the negotiation process. Be sure to keep copies of any correspondence you send to or receive from your creditor, and you should also keep documentation of any telephone communications regarding the settlement.

Don’t expect the negotiation to be completed overnight; it can take up to several months for an agreement to be reached.

So what happens after a settlement amount is finally agreed upon? You should first insist on a written statement of the settlement agreement from the creditor, which should include a promise from them that they will never sell the forgiven portion of the debt to another party in the future. Only after you obtain this documentation should you make payment.

If you would prefer not to negotiate with your creditors yourself, you could hire a debt settlement service. Just be sure to investigate potential debt settlement companies thoroughly before hiring them; seek one that has a satisfactory record with the Better Business Bureau.