Debt settlement: Cheapest way to get out of debt?

We all find ourselves in debt due to changing economic times and financial stability. However, we may sometimes find ourselves much into debt if we do not control our appetite for borrowing. Sooner than later, you may find yourself at a point where paying back your loans and other bills are becoming a problem. At this point, debt negotiation services become necessary for debt relief.

Debt life comes in many forms and one of them is debt settlement. Well, this is one of the options to take to address your financial problems. So, is it the cheapest way out of your financial problem? Well, there are many debt settlement companies as found in the American Fair Credit Council (AFCC) association.

Choosing debt settlement for debt relief

 Consumers choose debt settlement to save them some money. This happens as they resolve their financial debts for less than what they were supposed to pay. In debt settlement, you bargain to pay an amount less than the remaining balance. This is a possible way out of your debt burden especially if you cannot pay the entire amount you owe.

To understand whether debt settlement is the best and most affordable way out of your debt, look at the details of the plan. Typically, this is an arrangement where you offer a lump-sum payment as a creditor forgives you part of your debt.

You must negotiate your debt settlement plan and stop minimum monthly payments for the money you owe. However, you should know that this would attract late fees and interest hence damaging your credit rating.

Most debt settle plans provide between 10% and 50% of your total debt. As you plan to take up this option, remember that the process has risks as well. This is especially when you stay long without paying your debt. Your creditors may sue you for this. Nevertheless, creditors will only reduce your debt at their pleasure. They are under no obligation to do it.

How debt settlement works

 The objective of choosing a debt settlement plan is to check whether you can pay an amount less than what you owe. In this arrangement, you promise your creditor to pay a lump sum if they will forgive you the other portion.  Depending on your situation, your creditor may ask you to pay something between a tenth and a half of what you owe.

It is up to the creditor to decide what to offer you. On their part, consumers use the services of a debt settlement company to act on their behalf. If you choose these services, you will pay them a fee that is usually a percentage of the total debt enrolled. This is the final amount you owe as you enter the plan.

According to the law, a debt settlement firm will only qualify for this fee after your debt is settled. Chargeable fees may range between 20% and 25%. At the same time, you may also pay tax on the same. Forgiven debt in this case is taxable income according to the Internal Revenue Service (IRS).

With taxes during debt settlement, you can have exceptions. This is especially if you can prove that you are insolvent. In that case, no taxes will apply to your discharged debt. You qualify for tax exemption if your liabilities are more than your assets. To determine if you qualify for insolvency, a certified public accountant can help.

In this plan, you will get the biggest reduction in your debt. Another benefit is that you pay your debt for the last time. This makes the strategy one of the most affordable debt relief options available to debtors. Ensure you can show proof of your ability to pay the remaining balance.

Important takeaway!

 There are many debt relief options available in the industry today. However, not all of them can work for you, especially in saving some money. That aside, negotiating to pay less for what you owe is the cheapest option to consider. All you need is to look for the best way to do it. This is especially using a debt settlement firm. If your creditor agrees to reduce your debt upon payment of the remaining balance in a lump sum, you will end up saving a lot.