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.
Latest Finance Articles
Why Finding the Right Coin Price Guide is Important
By: Gareth Bray | 29/08/2008
If you're new at coin collecting, you might find yourself overly excited at the prospect of finding or holding a coin that's priceless. Some coins are worth more than others, while other coins are not worth anything at all. To help you figure out if what you have is treasure...
The How and Why Behind Online Stock Investing
By: Jack Benson | 29/08/2008
Do you want to get involved in stock trading? The modern and easy way to do it is online.
Let's explore a bit of the history of stock trading. The first continuous stock exchange trading took place in Amsterdam during the 17th century. Before this stock exchange, during the 13th century...
Benefits To Refinancing Your Mortgage
By: Edwin Hezron | 29/08/2008
A lot of people don't really understands what it means to refinance your mortgage, Though it a popular term but it has been greatly misunderstood.Despite the several factors that may influence it, there are different benefits to refinancing your mortgage.
Refinancing your mortgage has a lot of advantages in this our...
Finding Finance Inside Your Business
By: Rakesh Gaikwad | 29/08/2008
Many businesses are finding it increasingly difficult to secure funding for expansion at the moment due to the credit crunch, but there are still ways to raise the money that you need for expansion.
The first thing to remember about borrowing money is that you will need to be able to...
Try An Asset Protection Trust In Mauritius To Pass Your Assets On To Your Family!
By: Ramapati Singhania | 29/08/2008
Asset protection trusts are time tested legal instruments to save your wealth and pass it on to whomever you choose.
Why You Need To Avoid Repeated Finance Applications
By: Peter Kenny | 29/08/2008
Over recent months lenders have had to really tighten up on their lending criteria, and this means that many of those that may have been eligible for a credit card, loan, mortgage, or car finance last summer may now find that they encounter real difficulties when it comes to getting the credit that they need
How To Use Debt Consolidation To Get Yourself Out Of Debt
By: Peter Kenny | 29/08/2008
With the increased costs of energy, fuel and food, more and more homeowners are finding themselves in financial difficulty having to cope with these rising prices as well as higher payments on their mortgages because of higher interest rates charged by lenders
Make Sure You Get A Fair Price For Your Home
By: Peter Kenny | 29/08/2008
Most people have heard that the property market has slowed down considerably over recent months, with a number of factors affecting the level of property sales that are being seen. Estate agents have reported very poor property sales, and many homeowners are struggling to try and sell their properties
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 
