Debt Settlement Guide - What to Expect When You Use a Debt Settlement Company

Consumer CollectionsIf you have a problem with outstanding debt, then using a debt settlement company may be the best option for you. Debt settlement is when you reduce and negotiate down the principal on your outstanding debts. It is possible to reduce the amount that you owe anywhere from 40 to 60 percent. You can settle most types of debts, including credit card debts and medical bills. By reducing the amount of debt you have and lowering your payments, it will help avoid bankruptcy. The settlement company can also reduce or eliminate late payment fees and over the limit fees from a credit card company.

The way it works is a debt settlement company will offer a settlement program to those who need help and the company will negotiate with your creditors. Most of the time you will be charged a fee for service upfront, but sometimes companies will only charge you if they save you money. When you use a debt settlement company you will stop paying your bills to your creditor and make a one-time payment to the collection company. The settlement companies will deposit that into an account for you and when you have accumulated enough money in the account, the settlement company will then begin to negotiate with the debt collectors. Debt settlement companies will usually charge a percentage of what you have saved or the amount that was eliminated. The factors for the fees from the settlement company include the amount you will save by settling, how much debt is owed in total and the amount of accounts you have. The amount of time it will take to complete the program will be approximately two to four years, but this depends on the amount of debt you owe. After a creditor eliminates part of the debt, it is possible that you may owe taxes on the eliminated debt. The debt that you will not have to pay is called cancellation of debt income and may be taxable under IRS guidelines. Once your debt is settled you will not be able to get sued for the debt in most states.

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