If you have outstanding credit card debt, which you haven’t paid down for quite some time, your creditors will most likely offer you a debt settlement. This is basically an agreement to lower your overall balance, which includes drawing up a contract to secure payment of a portion of the amount. This may seem like an advantage to you, but debt settlement can have negative effects on your credit report. This is one alternative to credit card debt consolidation, but you must pay attention to the fine print. You and the creditor both have partial control of the situation; just make sure you know what you’re getting into.
You may be offered a debt settlement by your creditor if you have a high credit card balance and they fear they could lose it all if you filed bankruptcy. You will be contacted and proposed an offer stating they will reduce your overall balance, sometimes up to 50%, as long as you agree to a contract. This contract states you will make monthly payments in-full and on-time. As long as you do, you’ll only pay the reduced balance. But before you sign up for a debt settlement, there are a few hidden loopholes you should consider.
Every debt settlement you enter will show up on your credit report and will lower your overall score. Debt settlement companies don’t make payments for you like debt consolidation companies, so your credit card debt will still be in default and you can be sued. And finally, the IRS can be involved as well. If you have more than $600 in forgivable debt, they may regard that as taxable income. So debt settlements aren’t your golden ticket out of credit card debt, but you can still negotiate a deal to your advantage.
The debt settlement negotiation process is slightly in your favor, for if you chose to file bankruptcy the creditors wouldn’t see a dime of your balance. Credit card debt isn’t an uncommon problem in this country, and the creditors know it. They are willing to bargain with you as long as you agree to the payment arrangements. You are usually offered a slightly larger amount than what they will accept, so be confident but not aggressive when negotiating with them. After all, they are attempting to recover credit card debt that is on your record, so do your best not to ruin your chance at debt settlement.
All in all, if you have credit card debt that you’ve not made any payments on for a long time, you will be offered a debt settlement. Although it will shed negative light on your credit report, it may be in your best interest to take their discounted offer and pay off that balance that’s been haunting you for so long. As much as you wished it would, credit card debt does not vanish if you ignore it. Creditors will take the necessary actions to retrieve their money at any cost, so if you are offered a debt settlement, be wise about it and make the right decision.
