Debt Settlement: Is It Right For Me?

By: Michael Millington

For those whose debts are getting out of hand or those who want a little peace and assistance with debt in their lives, there are a lot of debt relief options that may come to mind. Bankruptcy is one that many think of when considering a debt relief plan, but it’s not the option many consider first. One of the best solutions for an exorbitant amount of debt is debt settlement, and it’s a viable option in time of trouble for a lot of debtors out there. In order to know whether debt settlement is the right option for you, there are some simple points to consider.

 

Everyone’s circumstances are different. Professional help is available for those who want to learn how to eliminate credit card debt or just engage in rebuilding credit. Those who want to start with an attempt at a debt settlement need only consider a few basic points to start.

 

 

Potential Benefits of Bankruptcy

 

Consider what type of debt you have and if it can be discharged (or eliminated) as part of a bankruptcy proceeding. Those who mainly have credit card debt or other types of unsecured debt are in the best position to receive a discharge through bankruptcy. Those who owe for a car loan or a mortgage may not be able to succeed here, as these are kinds of secured debt. Those who owe student loan debt or for various legal judgments are perhaps in the worst position of all as these can’t be discharged even by bankruptcy.

 

 

Can You Pay Your Debts Yourself?

 

You should also consider your available resources. Are you coming into an inheritance or a similar large sum of cash? Can you build a similarly large sum in a short period of time, not necessarily equal to the amount currently owed, but within, say, 60 percent of it? If the answer to either question is yes, you may have an excellent chance of success in a debt settlement procedure.

 

 

Potential Consequences of Debt Settlement

 

Finally, consider what will happen after the settlement. Depending on how the settlement is done, there are potential ramifications after the fact to consider. The impact to a credit rating might not be trivial and there might be other factors to watch out for. If it is credit card debt, and you stopped paying in order to build that lump sum, the hit might be hard. Even if that’s not so, a successful debt settlement attempt is classified as taxable income by the United States. If you went in owing $10,000 and made a settlement of $4,000, that remaining $6,000 is considered taxable. It may be enough to move you up a tax bracket, so keep that in mind when engaging in debt settlement.

 

 

Summary of Debt Settlement

 

In summary, start by considering the kind of debt involved, and whether or not a lump sum payment can be made. Don’t forget to look at the consequences of success after the settlement, and look into several options when it comes to debt settlement, from a do-it-yourself option to having a lawyer do it to enlisting a debt settlement company.

 

With these points in mind, you’ll be a long way down the road to a successful debt settlement operation, and in turn, getting some clear relief from debt that’s a great alternative to bankruptcy. Being able to settle debt allows both sides to get at least some of what they want, and prevents the much greater potential hit that bankruptcy represents.