Debt Settlement and Negotiation
If your accounts are all in collections, then debt settlement
may be an option for closing unresolved accounts. It will still
damage your credit when you pay less than the full amount owed,
but at least it can save you some money and help you avoid legal
action. Keep in mind that any forgiven debt of $600 or greater
will be reported by the collection agency to the Internal
Revenue Service as a form of taxable income.
Never use a debt settlement company to negotiate with your
creditors. You can do this on your own for free. Debt settlement
companies earn interest on your monthly payments and
charge initial fees, monthly fees and a percentage of the
forgiven debt.
While you are making these payments, nothing goes to any of
your creditors until a settlement is reached. It can be
difficult to back out of agreements with debt settlement
companies without losing a substantial amount of money.
If your accounts are still with the original credit card
companies, then you should avoid debt settlement. You can
reestablish your creditworthiness by bringing your accounts
current and paying them off in full. Credit counseling can help
you do this. Consider working with a credit counselor today to
examine your situation and discuss different options.
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