Explaining Debt Settlement in Basic Terms
I write a column for The Detroit News and had the opportunity to address an interesting question that came in from one of my readers. I thought it would be valuable to share on this Debt Relief Blog! So read on…
If you have any questions you want to ask me, feel free to contact me at coach@debtfreediva.com
Q. In one of your past columns “Explore feelings, heal money woes” you mentioned Debt Settlement as one of the options of getting help with your credit card debt. Could you explain a little more about what Debt Settlement is exactly and how I would go about looking for a reputable company? What exactly does a Debt Settlement company need to be reputable and what do I need to look for in this company?
A. Thank you for reading my column! Debt Settlement provides an option to deal with unsecured credit card debt and allows you to do the following:
• Control your money as you save toward a lump-sum pay-off
• Honorably negotiate your pay-off at a much lower amount
• Considerably shorten the time it takes to clear your debt
In essence, debt settlement/negotiation can help you get out of debt for the least amount of money in the shortest amount of time without filing for bankruptcy. The debt settlement/negotiation company will establish a monthly savings plan that fits your budget based on your total amount of your debt. In addition, the company will negotiate a settlement amount with your creditors, which is often a fraction of the original loan amounts. When you save enough money to completely settle your debt, you write the check and your account is cleared. Enrollment in a debt settlement program does not show up on your credit report however, anytime a creditor goes unpaid, there will be negative marks on your credit report to reflect late or lack of payments. Once your debts are settled, your accounts will show as settled or paid, placing you in a position to rehabilitate and reestablish your credit, remove any errors from your credit report and take the next steps to your financial freedom.
It’s important to be clear that Debt Settlement is NOT the same as Debt Consolidation, Credit Counseling or Bankruptcy. Too often, people have the misperception that there is a lot of overlap between the different programs.
When selecting a Debt Settlement company to work with, here are some things to take note of:
• The company has been in business a minimum of 2 years.
• The Debt Settlement plan takes no longer than 3 years to complete
• The company requires your direct participation versus doing everything on your behalf.
• Most important, the company is a member of The Association of Settlement Companies (TASC). TASC represents and advocates for the “fair regulation of the industry and the protection of consumers. TASC is the preeminent trade association for the debt settlement/negotiation industry. Visit to learn more about the criteria a member must meet.
With regards to having to pay income tax on monies saved, some creditors will issue IRS Form 1099 showing your monies saved as income, which may possibly be subject to income tax. However, the consumer can fill out IRS Form 982 which indicates proof of insolvency. Based on insolvency, the income reported by the creditor on Form 1099 would not necessarily be taxed as income. It’s always best to consult a tax professional for accurate information as it pertains to your situation.
With regards to finding the right debt settlement/negotiation company to work with, you can search online by entering “TASC” at www.google.com and from there you will find debt settlement/negotiation companies who are members of TASC. Interview the companies you feel would best serve you. You’ll know when you speak with a representative if you feel they’re best suited to represent you.
Congratulations on taking control of your debt!
NOTE: If debt settlement is the route you decide to take, it’s always important that you do your homework when selecting a company to work with so that you make an educated decision. One debt settlement company I strongly recommend you consult with through your selection process is DebtXS - www.debtxs.com.
Hope this helps!
Dee Dee Sung
Founder and Creator, Debt Free Divas, Inc.
www.debtfreediva.com
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