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Options for Debt Negotiation Settlements
By Kari Johnson on March 30, 2011

1070268_13971513-(1).jpgIf you can’t afford to pay your debts, you may have been told about a settlement option.  It may sound easy, but successfully reaching a debt negotiation settlement can be a difficult road.

If you have reached the point where you are no longer paying your creditors monthly, they may hire or recommend a debt settlement company themselves.  While it may seem odd to you that they would want you to pay less than you owe, this is really a loss-minimizing move, as they would get paid less in a bankruptcy settlement if it comes to that.
Hopefully, you’ve realized you need help before that happens.  You could employ your own debt settlement agency, but there are a lot of problems with these agencies, whether you hire them yourself, or you come to them through your creditors. 

The major problem a lot of people have with these agencies is the cost.  Some charge a flat rate, others a percentage based on how much they save you.  Some particularly dishonest agencies have been known to charge unnecessary fees that are expensive and make no sense to the consumer.

There are some honest (mostly nonprofit) agencies you could use, or you could do it yourself, eliminating the potential of the process costing you more cash than you save.

But you still have to consider your credit score before entering into a debt negotiation settlement.  When you have a company do this for you, you send them monthly payments instead of your creditors until they have accumulated a large enough sum to make an offer.  This could result in your creditors writing that money off as loss, which can mess up your credit report.

Also, be sure to get any agreement in writing before you pay the lump sum, as lawsuits have emerged over unpaid debts. 

Keep in mind that debt forgiven by your creditors can be considered taxable income by the IRS, which can also cost you more money.

A debt negotiation settlement may be for you, but you should keep in mind that this is not the only option.  Even if you do decide it’s the right choice for you, there are a few different options for how you can do it.  Just be sure you do research the options, and don’t let anyone tell you that they are your only choice.  Finding the right way to negotiate your debt settlement can have lasting effects on your financial security.
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