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Consumer Debt Settlement Information: Top Ten Things You Need to Know

By DebtSettlements.com Staff

Choosing consumer debt settlement over the many other options you have for dealing with your debt is a difficult choice to make. Before you make a decision, you must understand this debt settlement information.

Debt settlement may allow you to cut your debt significantly.
While the credit card industry is not going to advertise this, sometimes they are often willing to slash your balance by 20 to 75 percent in order to assure themselves that they will get paid.

Debt settlement is difficult to attain on your own.
Your creditors are going to work hard to ensure that you pay back what you owe. For this reason, some people turn to debt settlement companies to help them arrange the settlement.

Professional debt settlement help is not free. Even if you are working with a “non-profit” organization, you will pay for their services. Understand what you will be paying before you enter into an agreement, as each company has its own fee model.

Debt settlement may not be an option if you aren’t already behind on your debt.
Creditors are usually less willing to work with consumers who are current on their debts, even if the debt load is tremendous.

It’s a good option for those who are headed towards bankruptcy but cannot qualify for Chapter 7. Chapter 7 bankruptcy, which writes off most unsecured debts, may provide a better option, but recent legislation makes it harder for the average American to qualify for this. For those who only qualify for Chapter 12, debt settlement allows you to avoid the costly, sometimes messy world of bankruptcy court. It also may allow you to keep other assets, like your home.

The process has an effect on your credit rating. However, for most who choose this option, that is not important, since they are already behind on debts as it stands. If you have managed to keep your credit strong while struggling with debt, your credit score will take a hit with the settlement of debt.

Debt settlement is taxable.
If you have forgiven balances exceeding $600, you will have to pay taxes on that, because in reality you spent it as “un-taxed” money when you made your original purchases.

Not all states allow for-profit debt settlement companies.
If you live in Arizona, Hawaii, Louisiana, Maine, Mississippi, New Mexico, New York, Georgia, New Jersey, North Dakota, Wyoming or West Virginia, your state has laws in place that prohibit for-profit debt settlement companies from performing this service for you. While many companies still operate in these states, they do so illegally.

Not all debt settlement companies handle the process the same.
Before you enter into an agreement with any debt settlement company, make sure you know how the creditors will get paid, what type of communication will happen between the company and the creditors and what proof you have that the agreement is acceptable to all parties.

The bottom line is that you need to do your homework and weigh your options carefully when considering any option for dealing with overwhelming debt.

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