By Manuel Tovar, July 19 – Hispanic Solutions Group
When you are struggling with one or more overdue debts You may be wondering if debt settlement is the right way to fix it. It may be a viable option, depending on the approach you take: relying on a third-party debt settlement company, or settling the debt on your own.
Experts warn that using a debt settlement company can be an expensive and risky alternative. Meanwhile, a DIY settlement plan may work, but it can be difficult to pull off.
Faced with these doubts and unknowns, Hispanic Solutions Group They will be informing you of any concerns regarding this issue.
The Basics of Debt Settlement
Debt settlement, also known as debt negotiation, involves eliminating debts by paying a portion of them in one lump sum. Usually this amount is much less than what you originally owed. For the borrower, debt settlement can provide financial relief and guide him towards rebuilding his credit. For the creditor, debt settlement allows them to receive at least a portion of the money owed to them instead of receiving no money at all. Also, it can mean that the borrower can avoid filing for bankruptcy. Although, according to some experts, declare bankruptcy it may be the best alternative in some cases.
Debt settlement typically involves money that you owe to credit card issuers, rather than other types of debt. But you may also be able to pay off other unsecured debt.
How Debt Settlement Works
Debt settlement handled by a debt settlement company differs from taking a do-it-yourself approach. This is what the process looks like when hiring a debt settlement company.
- Research debt settlement companies.Several legitimate debt settlement companies operate in the US Most states require them to be licensed. Debt settlement companies are supposed to follow industry regulations that are designed to protect consumers and their money.
- Be careful.If a debt settlement company promises certain results, proceed with caution. For example, they cannot guarantee that a creditor will even agree to a debt settlement, forgive the redundancy, In the course of your investigation, check the websites of the debt settlement companies you want to hire, the attorney general’s office from your State and consumer protection agencies such as the federal Office of Consumer Financial Protection (CFPB).
- Ask about costs.Once you’ve zeroed in on a debt settlement company, ask how much it charges for debt settlement. If the company avoids your questions about costs, it may indicate that it is a shady operation. Debt settlement companies generally charge a 15% to 25% fee to address your debt; This could be a percentage of the original amount of your debt or a percentage of the amount you agreed to pay. Let’s say you have a debt of $ 10,000 and you settle for 50%, or $ 5,000. In addition to the $ 5,000, you may have to pay another $ 750 to $ 1,250 in fees to the debt settlement company.
- Review your finances.Debt settlement companies often require you to put money in a special savings account for 24 months or more before the debt is fully paid off. These payments go toward a lump sum settlement of your debt. In some cases, it may be difficult for you to keep up with these payments. Therefore, you can resign from the settlement agreement before all or part of your debt is paid off. To avoid this scenario, review your budget to see if you could pay off debt payments for 24 months or more.
- Find out about the schedule.It often takes two to four years to complete the debt settlement process. During that time, you may accrue interest and fees charged by the creditor, in addition to the fees charged by the debt settlement company. Why would a creditor “hit” you with interest and fees? Because debt settlement companies often suggest that you stop making payments to your creditor while working with a settlement company and instead transfer that money to a special savings account. Keep in mind that if you have stopped payments to your creditor, debt collectors may contact you or even sue you.
- Select a debt settlement company. If you are fully aware of the potential hurdles and are ready to move forward with debt settlement, it is time to choose a debt settlement company based on your research.
- The key to success is the details. Before doing business with any debt settlement company, make sure you are clear on the schedule and fees. Also, ask yourself how much of your initial payments will go towards company fees and how much money you will end up paying over time.
- Know the tax consequences. The IRS Consider any forgiven debt as taxable income if it exceeds $ 600. So if you pay off a debt of $ 10,000 for $ 5,000, the $, 000 that was forgiven will likely be taxable.
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