“Dear Steve,
My annual income is 22,000. a year, I have almost 12,000 in debt, i want to debt settlement, because its tooo much Ive been paying my minimum payments and i am current. I want debt relief, on my income I cant pay it back just tooo much, i want to know about how much would they settle, me at if i was to go through with it, and how much would it cost me to file? and how much would my credit score drop if i am at 630 right now? thanks
Mariam”
Dear Mariam,
I’d suggest you first read How to Get Out of Debt. The Honest and Unvarnished Truth and The Truth About The Success Rates, Failure Rates and Completion Rates of Credit Counseling, Debt Settlement, and Bankruptcy. They will give you a great overview of what we need to deal with to get you moving in the right direction.
Then use the free How to Get Out of Debt Calculator to review your options.
Once you’ve identified a company you want to work with, then follow my step-by-step guide on how to check out a debt relief company.
Please post your responses and follow-up messages to me on this in the comments section below.
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If you are going to settle as opposed to internal creditor assistance, DMP, or bankruptcy…Settle directly with your creditors, do not pay a company to do it for you, but be forewarned not all creditors will settle. Make sure you get your settlement in writing before you start paying. As part of your settlement, see if the creditor will report the settlement to the credit reporting agencies as “Paid in full” instead of “Settled in full” ( this can stay on your credit record up to seven years ) and settled in full will look bad for future attempts to get credit. And lastly, be prepared to pay extra taxes…any amount over $600 that the creditor settles (forgives you from paying) will become taxable income – you will either receive a 1099c form, or the creditor will report directly to the IRS – either way, you will end up paying taxes on money that you never see…
( in other words, make sure you do ALL of your research, before you decide to settle)
I appreciate you coming in to offer assistance, but I need to correct a few things. I know dmp programs are naturally bias against debt settlement given that you have to routinely sell against them, and I know debt settlement sales people are naturally bias against your DMP program. I get the whole war between the camps, but it doesn’t help consumers. There are a few statements you made I would like to clarify.
Sometimes it does make sense for a consumer to hire a company to settle the debt. If your philosophy is that a consumer should never hire a company for anything that is possible to do themselves, well then that would mean they should never hire a DMP program either.
Asking for a paid in full designation rarely works, and consumers can ask all they want, but don’t derail a good settlement if the bank refuses to change an accurate report.
When you tell someone they will have to pay taxes, I think it would be fair for you to also mention that they can likely get a waiver if they are insolvent, since many consumers in a settlement scenario likely are. Otherwise it comes across as a half truth scare tactic.
I don’t understand what you mean by “paying taxes on money that you never see?” Of course they saw the money, they spent it on the credit card and they got stuff. If they don’t pay it back, then it is no different than income.
Paying taxes on debt that was forgiven is always cheaper than paying the debt in full with interest, but the way you explain it could make one feel the opposite.
Which creditors will not settle?
I certainly appreciate your visiting the site and offering an alternative POV and advice from a different perspective.
The paid in full comment is a bit of a misdirection. It doesn’t really matter how the settlement is reflected since the forgiven debt is still going to be shown as a write off.
The IRS form 982 will negate the tax liability for most people who are unable to pay and settle. http://www.irs.gov/pub/irs-pdf/f982.pdf