A recent story about debt settlement ran on WICZ Fox 40. While there may be a debate about whether or not debt settlement is a good thing or not, there is little debate that it is a politically charged issue.
Some people think that the debt settlement industry needs much tighter rules and regulation, others think that the debt settlement industry is providing a valueable service that helps people avoid bankruptcy.
Highlights from the story that ran on Fox 40:
What happens if you attempt to work with your creditors on your own to settle your debts?
But what happens if you settle your debt on your own?
That is a better option because you don’t have to deal with multiple companies and you are negotiating with your creditors directly. However, settling a debt with an agency or on your won, that account will be reflect as “settled” on your credit report instead of “paid” and that can make it hard to get credit in the future.
In addition, any debt settled over $600, you are required to claim as income on your taxes for the next year.
So there are also tax implications to debt settlement.
What do the credit counseling services say about debt settlement?
Valerie Sherwood, the Branch Manager of Consumer Credit Counseling of the Central Southern Tier says many times folks just don’t know what they’re getting themselves into.
You’re in over your head in credit card debt and debt settlement seems like a good idea.
The company promises you won’t have to pay off the entire balance on your account. so what happens while you pay the debt settlement company for a matter of months?
“The problem with that is nobody is getting paid for all these months and the debt is going more delinquent,” said Valerie Sherwood, Branch Manager of Consumer Credit Counseling of the Central Southern Tier.
In the meantime the calls get more aggressive, creditors charge your account off to collection and even worse — you risk being sued.
All while the debt settlement agency holds the money you’ve paid over months in an account until they think an amount your creditors will settle for is accumulated.
“Once that bank account gets to a certain amount, they’ll contact a creditor and ask them for instance, If they owe a creditor $3000, they’ll ask if the creditor if they’ll be willing to settle for $1500,” said Sherwood.
What you aren’t told is that creditors are under no obligation to settle for less money and there’s a chance they will refuse the debt settlement agency’s offer. Often times, leaving you with the option you intended to avoid — bankruptcy.
A better option — credit counseling or management — which lumps your payments into one sum. you pay that agency and they in turn pay your creditors.
Is debt settlement right for you?
Debt settlement can help you and can be beneficial. It may help you avoid having to file for bankruptcy. Be sure to speak with as many people as possible before you begin working with a debt settlement company — you want to gather as much information as possible.
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