Debt settlement is actually the process of effectively negotiating with creditors for convincing them to accept a reduction in the amount you actually owe on your pending debts. Debt settlement could be a really powerful tool that could be effectively used for recovering financially in case you are having the necessary resources for making debt settlement offers. However, you cannot opt for settling your debts without understanding the dos and don’ts of debt settlement. If you overlook these important things, there is every possibility that your debt settlement endeavors would lead to unforeseen problems.
Do Remember That Documenting Your Debt Settlement Is a Must
This is perhaps the most vital thing for you to do while settling your debt. You need to document meticulously your debt settlement agreement. If you are thinking of paying the creditor a substantial amount of money without any documentation, there is a possibility that your creditors or even the collection company could be improperly attempting to collect the remaining debt in future.
You need to ensure that the settlement is fully documented through some sort of an actual signed release or a creditor signed document. The least you could do is to have a clear-cut written document containing the details of the settlement agreement. Moreover, it is a good idea to write at the back or the bottom of the issued check that this payment is meant for full settlement of your debt. Remember this sort of documentation is necessary for safeguarding you in future, if by any chance, your creditor tries to seek collection on the one and the same debt.
Do Keep in Mind that Understanding the Tax Consequences Is Mandatory
You must factor in the consequences of debt settlement. Remember that while settling some types of debt, you may be required to pay income tax precisely on the forgiven amount of money from your debt. While calculating the total debt settlement cost, it is imperative that you factor in the fact that taxes could be owed on your forgiven portion. If you fail to consider the consequences, your financial condition could head towards a disaster. You may end up acquiring huge, tough to settle tax debts which cannot be easily discharged in bankruptcy. Also, it pays to remember that debt settlement does have a negative impact on the credit profile.
It may adversely affect your ability in future to borrow money at affordable interest rates. The credit report would be listing the account as paid or settled for less than the actual amount owed. That is a clear indication for your future creditors that an amount of money had been borrowed by you but you could not pay it back in full. Browse through debt settlement reviews to learn more about debt settlement.
Do Understand That Showing Your Financial Cards Is Essential
You need to get mentally prepared to show all your financial cards. Your creditors would be asking for documents supporting your income, your existing debts, your assets etc. They would be looking for convincing and resounding proof of your financial instability and hardship. Your creditors would want to be 100 percent sure that the individual they are going to provide this settlement to is not in a position to pay up the full debt. They do not wish to offer concessions to people who are just looking for a deal.
Don’t Promise Something You Cannot Keep
In case your creditor is allowing you to pay your debt settlement over a period of time, do not make false commitments that you simply cannot keep. Set your payment schedule or plans more realistically so that you could manage financially.
Don’t Even Consider Exhausting All Your Assets
Do not even think of exhausting your resources while settling your debts. You simply would not like to exhaust all your assets and then end up having debts that are still unsettled. It could be pretty dangerous to consider depleting huge portions of 401(k) or any other savings while settling your debts. If you realize that it is just not possible to settle all your debts without draining your 401(k), then it is better and much safer to opt for bankruptcy.
You must never forget that debt settlement could be a powerful and effective solution to apparently impossible situations. It, however, pays to keep in mind that debt settlement is certainly the best and most effective option for specific situations where cash or assets are sufficiently available for making solid settlement offers. It is also important to ensure that all other options have been considered before opting for debt settlement.
Author Bio: Tyler Walters is a finance consultant and debt mitigation expert, working in the private finance sector. He is also an active blogger and has written a number of articles about budgeting, wealth management, debt settlement reviews and much more.