Debt Settlement Facts By Marie Megge At Isnare.com Ezine Articles

More often than has ever occurred in the past, a significant amount of people are finding it extremely difficult to pay all of their monthly bills and as a result, have fallen behind on their payments. When issuers of credit cards receive late payments (even by just one day) their normal policy is to raise consumers’ interest rates by staggering amounts, leading to additional late payments, progressive collection activity and very possibly bankruptcy.

If you’re dealing with circumstances very similar to these, chances are you’ve looked into debt settlement, but still have some doubts regarding whether or not debt settlement is the path you should choose to become debt-free. Below are some facts regarding the process of debt settlement to assist you in making a decision about your financial predicament.

• Debt Settlement (Debt Negotiation) Defined. Debt settlement is a process whereby creditors agree to accept less than the full balance owed them as payment in full. In other words, if you owe your creditor $10,000, there’s a good possibility that you can settle your account for anywhere between $3,000 and $5,000, with no further balance owed.

• Your Credit Score May be Affected. While debt settlement doesn’t contribute to a lower credit score, delinquency does. Unfortunately, your creditors won’t consider offering or accepting a settlement agreement on your accounts until after the accounts have fallen into a delinquent status. Most people considering debt settlement are already delinquent, and their credit score will improve significantly after a zero balance is reflected on their credit report. Those who are not delinquent, however, will likely see their credit score decline before it improves. For most people, however, a decent credit score is less important than financial freedom and peace of mind.

• You May End Up With a Tax Liability. Creditors are required by the IRS to report canceled debts over $600, and you would also be required to report the amount of your forgiven debt as income, unless you were insolvent during the time which you settled your various accounts. In order to be classified as insolvent, your assets may not exceed your liabilities, which may be highly probable if you’re buried deep in debt.

• Debt Settlement Can Take Several Months to Complete. Depending on the amount of money you owe, the stage of delinquency what your accounts are and your ability to accumulate sufficient funds for settlement, this process can take anywhere from 30 days to 30 months.

• Not All Debt Is Negotiable. Only unsecured debt may be negotiated. This includes credit cards, medical bills, personal loans, department store credit cards and gas cards.

Fortunately, the process of debt settlement has helped many individuals and businesses avoid bankruptcy. If you’re at the end of your rope and you simply don’t see yourself ever digging your way out of debt, debt settlement is certainly a viable option, and one you should consider. While it’s important to understand this process and all that it entails, it’s equally important to realize that you could very likely be strapped with debt and unaffordable payments for many years to come, so debt settlement is definitely something worth looking into.

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