Debt settlement, also known as debt negotiation, is a method used to permanently eliminate certain types of debt. Often reserved as a last attempt to collect a debt prior to writing it off as uncollectible, creditors are sometimes willing to accept a reduced financial settlement in order to fully satisfy a debt.
Currently, there are a number of non-profit organizations who are designed to offer debt negotiation services on behalf of debtors. Debt settlement companies, as they are often called, will contact each creditor and attempt to negotiate a settlement that reflects a fraction of the actual account balance. Depending on your available funds, a debt negotiation may require a lump sum payment or a structured payment program. For instance, you may owe a creditor $7,000.00 and have fallen terribly behind with monthly payments. A successful debt negotiation may result in a settlement of 20% or more of the total balance payable as either a lump sum or structured payments over a specified number of months.
Depending on the amount of the forgiven debt, which is calculated by subtracting the settlement amount from the original account balance, you may receive an IRS income voucher from the creditor. This means that, in some cases, you may be required to pay taxes on the forgiven debt.
One of the most common questions that individuals have regarding a debt settlement program is how their credit report will be affected. Many will say that debt settlement is damaging to a credit score; but compared to the alternative of having continually reported late or missed payments, debt settlement shows that you have made an attempt to repay the creditor within your means. Once a creditor accepts a debt settlement, they will report the account as "Settled Account" or "Settled in Full" to each of the three credit reporting agencies, including Experian, Equifax and TransUnion. Every 12 months, you may obtain a free copy of your credit report from each of the three credit reporting agencies noted above.
Unlike bankruptcy, which can remain on your credit report for up to 10 years, debt settlement notations will expire in 7 years. Once a debt is settled, your obligation to the creditor is over and they will not continue to pursue collection efforts against you for the forgiven amount. Every lender knows that bankruptcy laws exist and when a debtor cannot afford to pay their bills, filing is a very real possibility. If this happens, the lender knows that they may ultimately receive a small portion of the debt or, in some cases, nothing at all. Therefore, most are willing to negotiate a fair settlement to end their interest in the debt and to avoid having to pursue legal action in order to collect payment.
Depending on the total amount of debt that you currently owe, a debt settlement program may take several months or even several years to complete. As a final thought to debt settlement and/or debt negotiation programs, they are one of the industry's best kept secrets that allows debtors to get a handle on their finances and happiness in their home.
Related Articles
Which Bills Are Eligible For Debt Consolidation & Debt Settlement Services
By: Brian Dolezal | 08/01/2007 | Finance
Certain types of debts will qualify for debt consolidation and/or debt settlement, while others must be paid outside of the program. When deciding how to best handle your need for debt relief, it's important to know which types of bills can be included and which cannot.
The Causes Of Debt - And What To Do When Bills Go Bad
By: Brian Dolezal | 09/01/2007 | Finance
If you think that debt is exclusively reserved for those with an addiction for shopping, think again. The truth is that more and more Americans are struggling with mounting credit card bills, penalty interest rates and miscellaneous fees.
Top 5 Reasons To Consider Debt Consolidation
By: Brian Dolezal | 11/01/2007 | Finance
The term debt consolidation is often thought of as referring to a debt consolidation loan, but that's not actually the case. This article will explain the process and why it may be beneficial for anyone who is in need of valid debt relief.
Debt Consolidation vs. Debt Settlement
By: Brian Dolezal | 15/01/2007 | Finance
When it comes to debt relief, there are several different types that can provide effective results to those who need to either get rid of their debt through a structured payment program or in one lump sum payoff. Before deciding which one is right for you, it may help to know a little more about each option and how it will affect your future ability to obtain credit.
Tips For Staying Out Of Debt
By: Brian Dolezal | 25/01/2007 | Finance
Although there is no actual debtor's prison, being buried under a mountain of bills can feel very constrictive. With a little discipline and a lot of persistence, you can happily maintain a lifestyle that will never be in need of debt relief again.
The Benefits of Living a Debt-Free Life
By: Brian Dolezal | 29/01/2007 | Finance
Once you make the decision to get out of debt and get a handle on your finances, you will finally begin to see a light at the end of the tunnel. Although the road to financial freedom is not a short trip and it may have a few bumps along the way, reaching the finish line is more than worth the trials of the journey.
Top 5 Benefits of Debt Settlement
By: Brian Dolezal | 01/02/2007 | Finance
If you have the finances to accomplish debt settlement, you can get out of debt quickly and permanently. Below are five reasons to consider this option for getting back on the road to financial freedom.
What To Do When You Find Yourself Deeply In Debt
By: Brian Dolezal | 05/02/2007 | Finance
If debt is mounting and you continually find yourself struggling every month, it may be time to seek debt relief. Programs are available to those who are late with payments, have bills in collections, or have had a sudden change in their income.
Got a Question? Ask.
Ask the community a question about this article:
Frequently Asked Questions
My name is Katherine Malachi, I am in search of an ...
By: audrarella | 16-07-2008
My name is Katherine Malachi, I am in search of an apartment without a Credit Check. I am a 62 year old widow with a handicapped son. We have been forced to move from the home we thought we would own. The man that we rented with the options to buy, took a loan out on the home and didn't pay. I had one year to go on this house and it would have been paid off. The bank is calling in the loan and I don't have the money to pay. If I did I would pay the loan as my son is very upset in moving. He doesn't like change nor the fact that he has to give up his dog. We both receive Social Security. If you can be of assistance, please notify me at Audrarella@aol.com or 910-717-0189
Has everyone forgotten the elderly?
By: Fkdupworld | 15-07-2008
Are they actually going to fade out paper checks?,,,,,,,WHAT ABOUT THE ELDERLY THAT ONLY USE THEM.I suppose they want it all electronic so that they can steal your money easier.
8how can I get help with my student loan.... 825 ...
By: Fran | 15-07-2008
8how can I get help with my student loan.... 825% already consolidated and its killing me at $325.00 per month
Party like a rock stat
By: valatine22 | 15-07-2008
21 and over invited to my party just answere back ok! ok! and my speacial guess is 50cent the party is on friday the 18 2008. Loser not invited like 50 cent said to me loser out out
I'm a small time real estate investor who has ran ...
By: jhrossii | 15-07-2008
I'm a small time real estate investor who has ran into a financial crisis. Is it wise to let my properties foreclose or file bankrupcy? I have never been late on any bills but the mortages on my properties are behind.
Gov't debt relief question
By: aspruil | 15-07-2008
how do you apply for goverment debt relief grants without going thru company selling the info? If it' free why pay someone for the info?
Q&A Powered by:
More from Brian Dolezal
Popular Industries Known To Use Mystery Shopping Services
By: Brian Dolezal | 27/02/2007 | Home Business
If you would like to earn some extra money as a secret shopper, you'll be glad to know that virtually every industry can benefit from mystery shopping. Just take a look at some of the options awaiting your consideration.
Secret Shopping & How To Present Yourself On The Job
By: Brian Dolezal | 22/02/2007 | Home Business
The art of being a secret shopper is, you guessed it, operating in secrecy. Also known as mystery shopping, the industry is designed around a company who needs feedback and looks toward a third-party, independent evaluator for a professional assessment of what works and what does not.
How To Earn Money From Home as a Mystery Shopper
By: Brian Dolezal | 20/02/2007 | Home Business
You may be surprised to know this, but you can actually earn money from home by being a mystery shopper. But, shopping involves going outside of the home, right? Wrong. Thanks to the internet, shopping is just a click away and, if you are a mystery shopper, you can make money from home at a time and place that is convenient for you.
Mystery Shopping FAQ
By: Brian Dolezal | 15/02/2007 | Home Business
Frequently asked questions about mystery shopping jobs.
How To Spot Mystery Shopping Scams
By: Brian Dolezal | 13/02/2007 | Home Business
For many, getting paid to shop for a living is nothing short of a dream come true. While there are many legitimate companies that hire secret shoppers to evaluate their business while posing as a customer, it's important to realize how to spot the real deal versus a real ripoff.
Choosing an Obedience Training Class for Your Puppy or Dog
By: Brian Dolezal | 12/02/2007 | Pets
If you have decided to enroll your four-legged friend in an obedience training class, there are a few tips to keep in mind to make sure that your choice is the right one. Choosing a dog trainer requires much more than simply selecting a name at random from the phone book and, when it comes to your pet, nothing but the best will do.
The Purpose Of Mystery Shopping
By: Brian Dolezal | 08/02/2007 | Home Business
Mystery shopping is designed to provide companies with valuable information that they may use to improve their business, service or product. A secret shopper is hired to visit a business location and will be assigned a specific task, which may include questions to ask, complaints to voice, purchases to make and certain business aspects to note.
Paid Surveys FAQ
By: Brian Dolezal | 08/02/2007 | Home Business
The top 5 frequently asked questions about Paid Surveys.
Finance 
