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Settlement for Debt Relief Includes Many Costs, Few Benefits
By Kari Johnson on June 21, 2011

despair-(1).jpgDebt is a problem that does not just go away.  Even after you have paid the initial amount you borrowed, the interest can keep piling up until it is more than you can handle.  To avoid paying money back for the foreseeable future, many people turn to debt settlement for debt relief.

There are agencies and nonprofit organizations that can help you negotiate a debt settlement, but you can also do it yourself.  Taking your income and expenses into consideration, you should determine how much you can afford to pay them, or you can pay one lump sum based on a recent windfall that has given you a specific amount of money.  Then you can call the company and tell them how much you would like to pay.
If you settle your debt and pay it off in a one-time transaction, you can see how it could simplify your life.  The interest would stop and you would no longer have to worry about late fees, or other ways that money can be added to your debt.  The most obvious way this can make your life easier is that you will no longer have to worry about paying this bill monthly, or think about how it is going to affect your credit score.

Sometimes, you can also reach a settlement where you can pay each month, but the payments are lower, as is the total.  You will still have to make monthly payments, but they should strain you less financially.  In this type of settlement, you should be careful not to agree to pay more than you can afford each month.

Another important thing to remember is that you should not pay anything once you have reached a settlement agreement with your debtors until you have the agreement in writing.  This will be important if you have problems later.  In some cases, companies have tried to sue the debtor for the money they did not pay, even though they agreed to a settlement.  If you get your agreement in writing, it should help in that event.

One possible disadvantage of debt settlement is that the IRS sometimes taxes forgiven debt as income.  You should check out their website for the regulations.

Debt settlement is a legitimate form of debt relief that you can handle yourself, saving you the money that an agency would likely charge you for the service.   Whether you use an agency or negotiate on your own, you should do some research before beginning the process.
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