Settlement Option - Things you should know before you settle
Settlements are a credit repair option that some creditors make available to people who are
in debt and wish to negotiate with the creditor to payoff their outstanding balance for a
lower amount than what is actually due.
Ironically, the longer an account is past due the better chance you have of a creditor
accepting your settlement offer.
Keep in mind that this is not always the case. Also, a debt can be settled in just one phone
call or it could take weeks, months or even longer.
Depending on your credit situation, there are a few factors that may affect your settlement
from being accepted or declined.
in debt and wish to negotiate with the creditor to payoff their outstanding balance for a
lower amount than what is actually due.
Ironically, the longer an account is past due the better chance you have of a creditor
accepting your settlement offer.
Keep in mind that this is not always the case. Also, a debt can be settled in just one phone
call or it could take weeks, months or even longer.
Depending on your credit situation, there are a few factors that may affect your settlement
from being accepted or declined.
- First, who is the creditor that you are dealing with? Is it a large corporation or is it a
small mom and pop shop? If it is a large corporation, they may decline and not agree
to any settlement offer and just wait. A large corporation has the resources to
continue to wait and “battle” it out with you until they get all of their money. On the
contrary, a small mom and pop shop may need as much money as they can get quickly
in order to continue operating their business. If they know you personally and you
have a relationship with them, they may be more inclined to give your situation more
consideration on a personal level.
- Second, the type of purchase. Was it a secured or an unsecured purchase? If it was
a secured purchase, meaning that there is something of value or collateral against the
credit extended, there may be more of an interest in recovering the collateral if there
is enough value in the collateral. If it was an unsecured purchase, meaning your
guarantee of payment is nothing other than your signature, the creditor may be more
susceptible to agree to settle for a lesser amount.
- Third, the age of the past due account. How long has it been since your last
payment? If, for example, you are 2 to 6 months past due, the creditor may not be so
quick to settle for a lesser amount. The creditor may be more inclined to workout a
repayment plan in an effort to get you to pay in full, of course with late fees and
penalties. If you are 1, 2 , or 3 years past due, the creditor will have to consider just
how much time and money they will have to spend in trying to recover the past due
debt on a closed account. Most likely, the creditor will settle for a lessor amount to
minimize any future expenses.
- Fourth, your personal financial situation. Do you have any assets? Taking into
account your income level, employment status, other credit, future income potential,
and in the end, whether or not it is worth the additional cost and time to sue you and
obtain a judgment against you.
Debt Solutions to help you improve your credit score!
Debt Credit Learning Center
This is pretty much all that goes into
the debtor, creditor, settlement
scenario. Of course, it may not
necessarily be in this order.
Please be aware that when entering
into a settlement situation, you are
dealing with money. In addition, when
you are dealing with money it is
inevitable that our good friends at the
Internal Revenue Service may elbow
their way into the picture. I refer you
to IRS Publication 908.
In a nutshell, this publication says
that by settling an outstanding debt
for less than what is owed, you may
be liable to pay taxes on the forgiven
the debtor, creditor, settlement
scenario. Of course, it may not
necessarily be in this order.
Please be aware that when entering
into a settlement situation, you are
dealing with money. In addition, when
you are dealing with money it is
inevitable that our good friends at the
Internal Revenue Service may elbow
their way into the picture. I refer you
to IRS Publication 908.
In a nutshell, this publication says
that by settling an outstanding debt
for less than what is owed, you may
be liable to pay taxes on the forgiven
amount.
This is not likely, however, consider this. If you did have to pay taxes on any forgiven dollar
amount, it would probably still be much less than paying the entire balance of your debt.
Credit is a simple concept that comes with it great responsibility.
If you find yourself in a bad situation due to job loss, industry cut backs, medical emergency,
or any other reason and you feel that a settlement will allow you to be free of debt and
allow you to move forward with your life, I absolutely encourage you to take full advantage
of the settlement option.
This is not likely, however, consider this. If you did have to pay taxes on any forgiven dollar
amount, it would probably still be much less than paying the entire balance of your debt.
Credit is a simple concept that comes with it great responsibility.
If you find yourself in a bad situation due to job loss, industry cut backs, medical emergency,
or any other reason and you feel that a settlement will allow you to be free of debt and
allow you to move forward with your life, I absolutely encourage you to take full advantage
of the settlement option.