Negotiate credit card debt

Debt settlement is a good alternative to bankruptcy. In most cases, the services of a professional debt settlement company are required. These trained professionals are well-connected in the credit industry and can negotiate with credit card companies and lenders.

The primary goal of debt settlement is to significantly reduce outstanding debts. The Borrower pays the lender a lump sum cash payment or develops a repayment plan. Once the agreed upon balance is paid in full, the remaining balance is written-off.

Debt settlement can be used to negotiate medical bills, credit cards, student loans, unsecured personal loans, repossessions and accounts in collection. Debt management agencies generally cannot assist in negotiations with mortgage lenders, secured notes, delinquent child support, or tax liens.

Oftentimes, these professionals can negotiate debt reduction by as much as 60-percent of the total owed. However, Borrowers generally won’t receive the full discount. Most debt settlement companies charge a start-up fee, along with monthly maintenance fees until debts are paid in full. These fees range from 10- to 40-percent of the total amount owed.

Let’s say you owe $100,000 and hire a debt settlement company to negotiate on your behalf. Their total charge for services rendered is 15-percent of your overall debt; or $15,000.

Now, let’s say the company reduces your debt by 50-percent; or $50,000. Even though you have to pay a service provider fee, you have still saved $35,000.

There is a possibility the Internal Revenue Service will charge tax on the reduced debt amount. Using the figure above, the IRS might assess capital gains tax on the $35,000. Experts recommend consulting with a tax professional before entering into a contract with a debt settlement agency.

It’s important to note engaging in debt settlement practices will adversely affect your credit rating. However, it is not a detrimental as filing bankruptcy. The impact debt reduction has on your credit score depends on your current credit status. If you have good credit, debt settlement will have a more negative impact than if your credit is already lousy.

There are numerous companies across the nation claiming they can reduce your debt. It is imperative to conduct research and ensure you are doing business with a reputable firm in good standing with the Better Business Bureau – bbb.org. Unfortunately, there are many scammers out there. You certainly do not want to place your private information into the hands of a con artist!

Once you locate a professional organization, you will need to provide information about your outstanding debts. Be prepared to provide account numbers and balances owed. Your designated agent will review the information and advise you of terms offered by each creditor.

It is important to understand creditors are not obligated to negotiate with debt settlement companies. Retaining the services of a reputable agency with a proven track record will improve your chances of successful negotiations.

Repayment plans generally last one to three years; depending on the amount owed. During the repayment period, Borrowers are not allowed to obtain additional credit. Most repayment plans require a considerable amount of disposable income be contributed on a monthly basis. However, for those who want to break free from the debt chains, settlement could potentially be the best option.

Prior to making a final decision, take time to review other debt reduction options. These could include debt consolidation, credit counseling and budgeting. Additionally, you can attempt settlement directly with your creditors.

By: Simon Volkov

Tags: Capital Gains Tax, Debt Management Agencies, Debt Settlement Companies, Delinquent Child Support, Filing Bankruptcy, Internal Revenue Service, Irs, Lump Sum Cash, Maintenance Fees, Medical Bills, Mortgage Lenders, Provider Fee, Repayment Plan, Repossessions, Settlement Agency, Settlement Company, Settlement Practices, Student Loans, Tax Liens, Unsecured Personal Loans