How to Find Debt Settlement Firms
It never fails to amuse me to hear critics of debt settlement warning those who are considering this form of debt relief that they may be facing a tax liability as a result of canceled debt. Even funnier are the warnings about the effect that debt settlement will have on your credit score.
Why do I find this amusing? Well, apparently these so-called “experts” have never been in a situation where they’re forced to choose between bankruptcy, debt consolidation, debt settlement or consumer credit counseling. When you’re faced with tough financial decisions, and you’re unable to make ends meet, the last thing you should be concerned with is your credit score. Rather, it’s time to find a solution to put your debt and sleepless nights behind you.
If you’re contemplating debt settlement, but have heard some negative feedback you may have some legitimate concerns. That being said, please understand that your concerns relating to debt settlement should lie strictly in the area of some debt settlement firms out there who want nothing more than to take your money and provide little to no service. This should be your number one concern, not your credit score or tax liability. We’ll talk more about debt settlement firms in a moment, but first let’s take a look at those factors which seem to have the critics so concerned.
Will you have a tax liability if you should decide to seek relief through debt settlement? You may or may not. Creditors are required to report all canceled debt over the amount of $600 to the IRS, and you will be required to report that canceled debt as income, and will likely be provided a Form 1099 from each creditor from whom you have received relief in the form of debt settlement. Keep in mind, however, that an “insolvency” rule exists for individuals who are considered insolvent at the time they settled their debts. This means that if your liabilities exceed your assets at the time of each settlement with your creditors, you are classified as insolvent, and will not likely face a tax liability. I highly recommend that you talk with a professional tax advisor to see where you stand with regard to the insolvency rule. Even if you are faced with a tax liability, what’s the big deal? Owing taxes due to debt settlement is simply because you realized a savings, and no doubt you’ll be much further ahead than would be the case if you remained thousands of dollars in debt, barely keeping your head above water each month.
As for your credit score, again, I don’t quite understand why this would be a concern. You’re in debt, you’re losing sleep and you don’t know how you’ll do it from one month to the next. Why worry about your credit score? One of the major perks of good credit is to obtain more credit – I think you’ll agree that you probably don’t want or need anymore credit at this particular time. Put your debt behind you and then start thinking about your credit score. In any case, the impact on your credit score through debt settlement is only temporary, and most people see a much improved score within 6-9 months of completing a debt settlement program. As a matter of fact, I talked with a former client just eight months after she paid off her final settlement, and she already had a 681 credit score. Not bad, considering had she not chosen to negotiate with her creditors she would still be borrowing from one credit card to pay another, and the cycle could have continued for several more years.
Some critics wonder what the actual savings through debt settlement really is, considering that interest and late fees continue to accrue prior to reaching a settlement agreement. Well, in most cases people do realize a significant amount of savings – even after late fees and interest, tax liabilities and debt settlement firm fees. Let’s say, however, that you’re $50,000 in debt, enter a debt settlement program and in the end (after paying taxes and professional fees) you only end up saving $10,000 (which is not very likely). So what? You still saved $10,000, which is a lot of money. You’re no longer paying minimum monthly payments, which could take up to 40 years to pay off. You saved thousands and thousands of dollars in interest that you would have ended up paying had you decided to continue making your monthly payments. You’re out of debt much sooner than you would have been if you had chosen another path. And best of all, you’re out of debt – period.
So, as you can see, debt settlement in itself is not necessarily the evil that some people would like you to believe it is. Some debt settlement firms, however, are. Because of this it’s very important to properly research this area prior to hiring a firm to represent you. First, please check the Better Business Bureau record of each company you’re considering. After you’ve narrowed it down, talk to those remaining companies and find out how their fee structure works, and if it sounds like they can be trusted. If a company you’re considering wants their fee up front – prior to providing a service – move on. It may take some extra time, but you can find reputable firms that will not charge you a fee until they have reached satisfactory results.
How To Choose Reputable Company
When it comes to dealing with debt problems you have to be cautious. A lot of debt consolidation companies can offer you the perfect solution for your problems, but service quality and reliability will vary.
Differentiating between the good companies and the less responsible ones is sometimes hard, especially since their initial offers sound very appealing. A low interest loan is the main offer of all debt consolidation companies and here are a few tips on how to choose the company that will provide you with the most benefits.
Their reputation. A long list of successfully solved debt problems doesn’t guarantee success in your individual case, but it shows you that the chances are high.
Looking for a reputable company is almost a necessity, especially for your peace of mind, but also for your wallet. Of course, established firms will tend to charge a little more, but the initial higher investment will probably pay off on a long-term basis.
Ask the company whether they will allow you to contact one of their previous clients and ask for a description of their service. Most of the time the client list is confidential, but you might run into someone who is willing to share their experience and who will provide you with valuable info on the company services.
Also known as balloon loans, they give you the possibility of paying the loan over an extended period – five years or more.
The monthly payments are very low, but, at the end of the period, you will have to pay the full loan. This means that after a five or ten-year period you will still have to pay a large amount of money, since the low monthly payments barely covered the interest fees. This is usually a very tempting offer, at first glance, but it may have disastrous effects on a long run.
Non-profit companies. Many people see the non profit term as a sign that they will be treated correctly and that there are no hidden interests in the loan process. Do not rely on this entirely, as some non-profit organisations that deal with debt consolidation may either be less professional or they might even take advantage of your problems.
Understand the payment process completely. If a company presents you with a debt consolidation plan, make sure to study it yourself before accepting it. If something is not clear, ask the company representatives to explain it to you until it becomes so. Even the tiniest detail in a loan contract may become a large obstacle in the future, if you misinterpret its meaning. It also helps to do the math yourself, not just to rely on what the company is offering you.
Double check if the debt consolidation company plan is clear and exact, and make your choice only when you are 100% sure of the terms.