The state of this nation's economy is a picture of "doom and gloom" and is very likely going to become worse before we see an improvement. Unfortunately, this economic downturn has already affected millions of people, and families are finding it more and more difficult to keep up with their monthly financial obligations. This includes mortgages, car payments, lines of credit, student loans and unsecured credit card debt.
Regarding unsecured credit card debt, it's simply not fair to consumers, but for some reason the U.S. government doesn't feel it's necessary to put in place, laws to protect individuals from outrageous fees and interest rates charged by the issuers of credit cards. Because of this, many are faced with the possibility of a bankruptcy filing to free themselves from the stranglehold of their creditors.
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Of course, many people have a strong desire to free themselves from debt, and doing so legally and ethically - without the necessity of a bankruptcy filing - is a number one priority. Chances are, you've found yourself in exactly this situation, resulting in your determination to find that path, which will allow you to eliminate your debt through a process known as credit card debt settlement (negotiation).
This same determination has led you to ask many questions, such as "what exactly is credit card debt settlement?" Credit card debt settlement is a highly-promoted form of debt relief, whereby a consumer (or a company hired on behalf of that consumer) may negotiate with a bank representative, who is authorized to accept less than the full balance owing on account. Typically, accounts are settled for 25%-65% of the balance owed. Obviously, this enables the debtor to save a substantial amount of money.
Does credit card debt settlement simply sound too good to be true? Well, it may - because debt negotiation does not always come easy. To be realistic you must understand that creditors will not receive every consumer with open arms; even those who are explaining severe financial hardship and expecting a more-than-happy-to-be-helpful creditor to write off thousands of dollars worth of debt are going to face some resistance on the creditor's part. If you could eliminate your debt that easily, every single debt-riddled consumer would be seeking the route of credit card debt settlement.
So, what are the drawbacks? Well for starters, creditors will not consider reducing the amount of money owed them unless the accounts in question are significantly delinquent. This delinquency can range anywhere from 90-180 days. Because of the requirement of this credit card delinquency through debt negotiation, you can expect your credit score to decline - at least temporarily - while your accounts are considered to be in a delinquent status, and still reflecting a delinquent balance owed.
On the upside, however, reduced credit scores as a result of credit card debt settlement last only a brief period of time, and you'll clearly see a decently upgraded score after your credit report has been updated to reflect zero balances on your accounts. Most people find that their score is right around the mid-to-high-600 range within 9-12 months after the conclusion of their debt settlement program has been reached.
Of course, many people are concerned about the possibility of litigation during the delinquency period of their credit card debt, and I'm sure you're no exception (and I certainly cannot blame you). Can your creditors sue you? Sure, they can; let's face it - you owe them money and they are certainly within their legal rights to take whatever actions may be necessary to collect that money. That being said, please understand that there's not a high likelihood of a lawsuit, and typically, less than 5% of delinquent accounts actually end up with an attorney for the purpose of litigation. Most creditors would prefer to reach a settlement on your account before they forward it to an attorney. And, if the account does land in the office of an attorney, and you have sufficient funds for a settlement, it's more than likely that the account can be satisfactorily settled out of court for less than the full balance via negotiations with the assigned law firm.
If you happen to settle one or more of your accounts for less than the full balance you can be sure the IRS is going to want to know about it; therefore, creditors are required to report any forgiven debt that exceeds $599.00 as income on Form 1099, which will be issued to you by January 31 of the following year the account(s) was settled. Fortunately, the IRS has in place, an insolvency rule; this is designed to exempt certain individuals from a tax liability as a result of forgiven debt. Many people aren't sure whether or not they will face a tax liability as a result of debt settlement; therefore, it's best to contact a tax professional who is extremely familiar with this topic.
Obviously, what matters most to you is that you're debt-free - whether through credit card debt settlement, or any other form of debt relief, including tightening your reins and paying off your debt, one creditor at a time. I wish you the best.
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