Possible Outcomes of Using a Credit Card Debt Settlement Program

Possible outcomes of using debt settlement companies are as wide as acquiring financial freedom or having more financial debt. The theory behind debt settlement companies is that they relieve people of the burden of negotiating with creditors and are allowed to pay the debt over time. Thus debt settlement companies are the middlemen. People pay the companies and they pay the creditors. However, there are many possible outcomes—both positive and negative-- when using debt settlement companies. For instance, bad debt settlement companies who take people's money, but not pay the debts off.

Possible Outcome: Less Debt

Debt settlement companies negotiate lower interest rates on the debts owed. So, there's less money to pay. Even better, companies negotiate with creditors to eliminate part of the debts. Debt settlement companies convince creditors to accept lower payments. According to The Association of Settlement Companies (TASC), the debt settlement payments shouldn't be longer than 48 months. Thus, with lower rates and lower payments means a possible outcome of less debt within four years.

Possible Outcome: More Taxes

When debt settlement companies convince creditors to eliminate part of people's debt, typically referred to as cancelled debt, companies may not explain the implications. Once people aren't responsible for paying a portion of the debt the Internal Revenue Service (IRS), considers the cancelled portion income. Thus, people are responsible for paying income taxes on that debt. A possible outcome is more financial burden which may occur when the income taxes aren't paid. The IRS may contact you for the back taxes.

Possible Outcome: Negative Credit Score

Granted, people behind in their payments may already have bad credit. However, when debt settlement companies contact creditors it may give them the opportunity to note it only people's credit report. When creditors note on people's credit reports that settlement proceedings are underway it's misleading and damaging. These simple words lower people's score because it indicates that creditors may be suing you to recover the debt.

Possible Outcome: Legal Troubles

The negotiations between debt settlement companies and creditors are not binding. Yes, the creditors can agree to the negotiated lower payments. However, creditors have no obligation to agree to negotiate the amount people owe or accept the payments, according to the U.S. Federal Trade Commission (FTC). Also, they can still sue for the debt even while people are making payments. Unlike filing for Chapter 13 bankruptcy, debt settlement companies don't protect people against creditors filing lawsuits.

Anyone considering debt settlement should talk to a debt settlement attorney before turning to a settlement company. It's important to have legal representation to avoid legal trouble.

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