Credit Card Debt Settlement Tips
For many people, the decision to eliminate credit card debt through debt settlement is a difficult one to make. This is due to the fact that most consumers aren’t well-educated in the area of debt settlement and debt consolidation.Over the past several years I’ve been asked numerous questions regarding the process of debt settlement, and have summarized those inquiries below: What type of debt can be negotiated through debt settlement? The majority of the debt you’re attempting to negotiate with your creditors would be unsecured credit card debt, as it allows a greater amount of leverage when negotiating, and the end result will likely be a satisfactory settlement to both the debtor (consumer) and creditor. Department store charge cards, financing contracts, medical bills and miscellaneous debts are also negotiable, even though it is been my experience that the results are not quite as predictable as standard credit cards. Unfortunately, government sponsored student loans cannot be negotiated or discharged. How are my creditors paid when a settlement is reached? Once a settlement has been negotiated with a creditor, obviously the settlement amount is then forwarded to that creditor. It is important to understand, prior to signing up for a debt settlement program, that the settlement funds must be available once a settlement agreement has been reached with a creditor. If it is unlikely that you can realistically accumulate these funds, either from a savings account, retirement account, home equity loan or a friend or relative, unfortunately you simply wo not qualify for this type of program. Fortunately, most creditors will accept settlement payments via 4-6 monthly installments. This has helped many individuals successfully follow through with their commitment to settle their accounts. Will my credit score be affected? Debt settlement is reported to the credit bureaus as "account settled for less than the full balance" or "account settled". Keep in mind, however, that credit card accounts that have been settled appear positively on credit reports when compared to bad debt, or a bankruptcy. Your credit rating may decline initially, but only until the debts can be removed from your credit report. It’s important to remember, however, that your credit rating will improve due to the fact that one of the most important factors used when determining a credit score is the amount of debt you actually owe. Individuals who have successfully completed a debt settlement program generally experience an overall improvement in their credit score within twelve months. If you found it difficult to keep up with the minimum monthly payments to your creditors, there a very good chance that the debt has already been reported as delinquent, which has most certainly affected your credit rating already. Generally this also means that you have a high amount of debt appearing, further contributing to a poor credit score. Remember a lender looks at many factors to determine credit worthiness, your credit score is just one of them. If you eliminate your outstanding debt, your credit worthiness improves dramatically. Will I owe income taxes on the forgiven debt? Banks are required to report canceled debts over $600 to the IRS and consumers are required to report that canceled debt as income on their tax return. The IRS does permit you to write off any "income" from canceled debts up to the amount by which you were "insolvent" at the time. Unless you have a positive net worth (highly unlikely if you are deep in debt) then you usually won’t have to pay taxes on the forgiven amounts. Can I continue to use my credit cards? No, you will not be able to continue using your credit cards. Not necessarily a bad thing, since high interest credit cards have gotten many people into a financial situation that they just have not been able to pull out of. When you enter a debt settlement program, most firms will require that you discontinue any further use of your cards. Some debt settlement companies, however, do suggest that you keep one card available for emergencies, generally with quite a low credit limit to avoid getting yourself any further in debt.