How Do I Know If Debt Settlement is Right for Me?
You may choose to seek help managing your debts or you may prefer to go it alone. Either way, it’s important to remember that there is no one-size-fits-all solution: You need to select the option that best meets your financial goals.
Nonetheless, if you’re feeling suffocated by your debts, it may be wise to consider the benefits of working with a debt relief company to help you settle, consolidate, or otherwise manage your bad debts. And while it’s important that you self-assess, here are some telltale signs that entering a debt relief program might be the right option for you.
You’ve Experienced Significant Financial Hardship.
If you’re managing tens of thousands of dollars in debt and consistently struggling to make your monthly payments, you may be a candidate for debt settlement. Most collection agencies are hesitant to write off a large portion of a debt if they know you have the capacity to pay it back over time. However, in the case of substantial, legitimate, and crippling financial hardships — like a job loss, health issue, natural disaster, or crippling divorce — your creditors are much more likely to entertain a discussion about forgiving portions of your debt.
You Have Sufficient Funds to Negotiate the Deal.
It’s highly unlikely your creditors will write off your debts wholesale. As such, you will be expected to negotiate a settlement for 50 cents on the dollar or less. That said, if you are so overwhelmed by your debts that you don’t even think you can manage them with a substantial reduction, you may need to consider other options, like bankruptcy.
Your Debts are Unsecured.
The settlement process only applies if your debts are unsecured, meaning you have not offered your car, home, or other property as collateral to secure the loans. Because secured debts offer creditors recourse in the form of seizing the collateral if you default on a payment, when it comes to unsecured debts, creditors are generally not motivated to accept any less than the full balance owed.
While the following lists are not exhaustive, they demonstrate common types of debt that qualify — or don’t qualify — for debt settlement:
Types of debts that qualify for settlement:
- Major credit cards
- Department store cards
- Personal loans
- Medical bills
- Collection accounts stemming from the above types of accounts
Types of unqualified debts:
- Car, truck, van or motorcycle loans
- Federal student loans
- Personal loans from banks
- Mortgages
- Child support
You Feel Confident Negotiating the Settlement.
Because lenders generally won’t forgive the full balance of your loan, you will be expected to negotiate a settlement amount. Consider whether you are prepared to have this conversation with your lenders. If you aren’t comfortable, you may want to seriously consider engaging an attorney or another trusted advisor who can advocate on your behalf.
You Can Cover the Resulting Tax Liability.
Any amounts of debt that your creditors forgive are deemed income and thus the IRS will subject the forgiven amount to income tax. Although there are a few exceptions to this rule, it’s important to make sure you’re prepared to pay tax on any forgiven amounts should you pursue settling your debts. While your creditors may be forgiving, the IRS won’t — so it is critical that you have enough savings to pay tax on any forgiven debts that the government will designate as “other income.”
You’ve Explored Other Options.
Before you attempt to contact your creditors to start a conversation about settlement, make sure you’ve explored additional options — and don’t get your hopes up! Debt settlement isn’t the best choice for every consumer, and it certainly isn’t a cure-all for your debts. In addition to considering settlement, be sure to explore options like consolidation, debt management plans, or even filing for bankruptcy if it looks like you may have exhausted your ability to repay your debts. As always, be sure to consult a professional financial advisor before you contact your creditors to ensure that settlement is the best option for you.
You Understand It’s Not an Easy Way Out.
Debt settlement is not a speedy solution to resolving your debt. It takes time — often months or even years — to settle your debt. Not to mention, while you are working on settling your debt, your creditors will likely call you incessantly to inquire why you’ve missed payments. Further, most creditors won’t clear the entire balance, so this option won’t eliminate all of your debt — not to mention, since the forgiven debt is deemed taxable income, it can take up months or even years to accumulate the cash to cover that resulting tax payment, especially if the forgiven amount was large.
At Countrywide Debt Relief, we have decades of collective experience helping people like you find the best debt relief option possible. Whether through consolidation or settlement, we can be your guide in helping you manage your debt. If you’d like to learn more about your debt relief options, we welcome you to visit our website or contact us.
