Debt Settlement
b>What is debt settlement?
Debt Settlement is a process to settle your debts with the
creditors. With debt settlement, a third party or you yourself
negotiate with your creditors to come up with a reduced debt
that you agree to pay. The reduction is usually between 30-60%
of the total original debt amount.
Attributes of Debt Settlement:
Debt Settlement programs gives you a lot of options to clean
your debts. It reduces your principal debt amount, eliminates
your late fees, lowers your APR, and provides you the
flexibility to repay your debts within your chosen time span.
Principal debt amount: Most debt settlement firms
negotiate with your creditors and reduce the principal debt
amount you owe. For example, in maximum cases 40-60% of the
original debt amount is reduced.
Late fee charges: Some debt settlement firms waive
off your entire late fee charges. It is sometimes seen that late
fee charges club to form a major portion of your debt amount.
Thus elimination of late fees can save hundred of dollars.
APR: Some debt settlement programs are done to reduce
the high APR's for a particular account. For example, some debt
settlement company may notify that APR has been reduced to 8%
for the proposals accepted after 10th September 2004 and reduced
to 0% for all proposals accepted before 10th September 2004.
Monthly installments: Debt settlement programs are
also determined on the amount you pay on monthly installments.
In this process you have to pay a single monthly amount to a
debt settlement firm in order to settle your debts. The more you
can pay the lesser period of time you take to settle your debt.
The amount of your monthly installment is fixed by the debt
settlement company based on your present financial status.
Annual time frame: Debt settlement is also chalked
out on the basis of extended time periods. In such cases you
have the provision to extend your time period from 2 years to 4
years or sometimes even longer. This is helpful for people who
cannot afford to pay at one go.
How long does a debt settlement process take?
A normal credit card debt settlement case might take 3-9
months. If someone wanted to speed up the progress it could be
shortened to 1-3 months. Someone wishing to stretch things out
could find the time extended to 12-18 months. Some special debt
management and debt reduction firms can even lengthen the
process to 4 years or more.
How much do these firms usually charge?
Most debt settlement companies are transparent about their fee
structure but you are advised to check out if there are any
hidden fees involved in the settlement process. On an average
the charge of debt reduction firms range from 8%-15% of the
total outstanding debt.
The advantages of debt settlement:
Debt Settlement is one of the quickest and best ways to
improve your Credit Report. Avoid being harassed by the
abusive creditors. Many collection agencies will settle
a debt between 40%-60% of the original debt amount. In this
process you can save thousands of dollars. You will only have to
make a single payment every month. With debt settlement
your time will be saved and your debts will be eliminated within
2 to 4 years. It is also less likely that you will have to fight
the creditor later to actually delete the negative listing.
The disadvantages of debt settlement:
Your credit will be affected in a negative manner. This
will be reflected on your credit report for the next 7-10 years.
However, despite this fact consumers still opt for debt
settlement and avoid bankruptcy. There is a probability
that creditors will continue to harass you throughout the
process of negotiations and may even sue you or garnish your
wage. However, only one creditor may garnish you at a time, and
in some states, you may not be garnished at all. ยข Some debt
settlement companies will only accept you, if you have $10,000
or more in credit.
7 attorney tips for debt settlement:
Be honest but represent your financial position to be
unfavorable. If considering bankruptcy, say so. But do
not incur any other debt after saying so. Never
disclose where you work or bank. Don't hire a lawyer if
you are not sure that you are in good standing when compared to
your creditor. If you are contacted more than one
creditor for the same debt, be sure that your account is sold
off to a second creditor. This indicates that you have avoided
the first creditor really well. If the creditor agrees
to settle for full then make sure that your account status also
shows "satisfied in full". There are high chances that
you may have income tax on the debt owed after settlement. The
creditor might send you a 1099-C at the end of the financial
year. You are then required to report the amount listed in the
1099-C as income.
You can get more resources from these pages :
http://www.
debtconsolidationcare.com/help.html ht
tp://www.debtconsolidationcare.com/debt-solution.html
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/www.debtconsolidationcare.com/debt-free.html
About the author:
Janet Williams is a contributing writer to http://www.debtconso
lidationcare.com/ and is currently working on a special
section in the site called do it yourself where you can
eliminate your debts and become debt free.
Author: Janet Williams