You probably find yourself neck-deep in ever-increasing personal debts. You find your smartphone never stop ringing. The collectors your lenders hire constantly remind you to repay your outstanding dues immediately. Almost all of them even inform you of the consequences of failing to do so. However, you’re not in a position to comply because your finances are in disarray. Your close acquaintances may suggest you raise the white flag and file for bankruptcy. However, you may not be willing to take this step for obvious reasons. It can ruin your reputation and creditworthiness in the market. This is why prominent financial experts recommend you opt for a suitable debt settlement scheme.
What exactly is debt settlement?
These professionals explain that debt settlement refers to the arrangement you agree upon with your lenders. You pay these financiers a lump-sum amount as a final settlement of your outstanding dues. This sum is slightly less than what you actually owe them.In return, they promise to waive the remaining portion. They also refrain from suing you in a court of law.You got to be successful in convincing your creditors to opt for this deal. Only then you can set yourself free from the vicious cycle of accumulating personal debts. It’s the initial step you take you to get your money matters back in order. You also get the chance to learn from past mistakes. This is what you want at the end of the day.
How does the process work?
The specialists state you can only enter into debt settlement scheme with your lenders. However, this is possible only under one condition.You have made frequent defaults on your repayment for the last couple of years. On top of this, these financiers are aware of an important fact. They can’t recover anything more than what you’re currently offering to pay them. This is why they agree to write off the remaining portion of the debt.If you opt to file an application for bankruptcy, it highly unlikely they receive this sum of money. It’s a risk they are not willing to take.
The experts say you need to consider the following three important factors when opting for a debt settlement scheme:
- Taking this step can going to affect your creditworthiness adversely
Your lenders may agree to accept what you’re offering to pay them under the scheme. However, taking this step is going to affect your creditworthiness adversely. There’ll be an indelible mark on your credit report indicating your failure to repay your dues. You won’t be able to remove this stain for the next seven years. You have got to accept this fact whether you like it or not. In the interim period, you’ll probably have a tough time to get new loans from the market. Financiers may probably think twice about providing you with any kind of monetary assistance. This is obviously a matter you need to consider.
- Payment of fees to the service provider
Most people aren’t in a position to enter debt settlement negotiations with their lenders. They have neither the experience, skills or knowledge to present their case properly during the talks. Their creditors may not take them seriously. You shouldn’t consider yourself to be an exception to this rule. You got to seek the help of service providers is specializing in this field. They can get you the results you’re looking for. However, they charge a fee for helping you come to such an arrangement. This is why you need to browse through the online debt settlement reviews of these financiers. You obviously want to hire the ones with a good reputation in the market.
- The sum of money your lender’s write-off is taxable
The officials of the Internal Revenue Service(IRS) carefully monitor all debt settlement agreements in the country. Your lender may agree to write-off a small portion of your outstanding dues to them. However, the taxmen regard this sum of money as income you receive in that previous year. As such, you’ll be liable to pays tax on this amount at the appropriate rate. You can’t escape this paying liability. Otherwise, you’ll find yourself in serious trouble with the authorities. This is obviously the last thing you want.It prudent on your part to consult a reliable tax consultant on this matter. Only such an expert can help you out.
Can you really save money by opting for a debt settlement scheme?
Debt settlement schemes can work wonders for borrowers who are continuously defaulting on their repayments. In the process, they are able to save money. You got to be aware of this fact. Opting for bankruptcy doesn’t benefit anyone. People who opt to take this step are exempt from paying what they owe their lenders. The judges looking into their liquidation cases generally pass this ruling.However, these individuals end up having to lose a property they urgently need.
On the other hand, the financiers hardly recover the entire amount they lend these borrowers. The amount they need to write-off as bad debt can be huge. This is an unacceptable loss to them. This is why they reluctantly agree to their clients’ debt settlement agreements. This is a fact which you can’t afford to dismiss outright.
Another debt relief scheme which borrowers with accumulating debts can opt for is minimum monthly payments. However, the interest rate of such financial program can be very high. Moreover, this charge compounds every year. It can take years of these individuals to clear their outstanding dues. In the process, they hardly save any money. This is why it common for them to default on their repayments. This makes their situation worse than what it already is. Fortunately, this isn’t the case with debt settlement schemes. This is one aspect you need to keep in mind.
Debt settlement schemes are a necessity for people with ever-increasing financial dues and not a luxury. Such policies allow them to clear what they owe to their lenders once and for all. In the process, they are able to save money while getting their finances in order. This is what they want at the end of the day.