[ad_1]
Debt settlement is now one of the mostought after options of eliminating personal debt, especially when the liability exemptions ten thousand dollars of debt. Debt settlement is the process of negotiating with your creditors and obtaining a reduction in the total amount of debt and in return making a one-time payment for that amount. However, while evaluating the merits of opting for debt settlement over filing for bankruptcy or any of the other methods of obtaining rid of your debt; you need to also consider the risks associated with the process.
Creditors are not too keen to negotiate for lowered amounts with a debtor who is regularly making his monthly minimum payments. This is because the repayments are what keep the creditors in business and they do not want to lose out on the amount that they can make as interest and incidental charges. When you default on making payments, especially if it is for a period of three months or more), creditors start to get jittery on whether or not they will be able to recover their money since there are chances that people who default on their payments may also be in a position to file for bankruptcy. However, this means that while you default on the payments, your credit score takes a beating. While ceasing to make payments can help you build up your savings which will eventually go towards paying your debt in a lump sum, it will bring down your credit score and your creditor may report the debt as "settled for less than owed" which is a negative for your credit report and score.
Another drawback of getting a debt settlement is that the money that you save (as the part of the debt that is forgiven) counts as income while filing for income tax. Therefore, unless you are bankrupt or do not have any means of making payment, the taxes would need to be paid. The creditors would send you a 1099-C form listing the amount of the loan that was forgiven and you must report this information on your taxes as part of your income.
[ad_2]
Source by Aditya Nath