- By: JIMMY CHUANG
If we were to come up with one term to explain the idea of debt settlement, it would have to be: forgiveness.
Indeed, as soon as a debtor decides to take the debt settlement approach, he will seek the sympathy of the creditor so that the latter will agree to develop terms which will be advantageous to both parties, for example, the granting of lower or total waiver of interest rates and/or late payment fines, satisfaction of the main amount only, to reduction of the main amount by as much as as much as sixty-five percent.
The number one concern most people ask regarding debt settlement seems to be this: will creditors actually sit down with the debtor to come up with terms favorable for the latter?
The answer is: yes. Creditors would rather recoup what they have given - despite terms which may be unfavorable for them - rather than forever lose the chance to recoup the same, as is the case when the debtor flees for another country, becomes incognito, or files for personal bankruptcy.
Debt settlement is an often neglected debt relief option, which comes as a surprise considering the fact that it's one of the most practical and one the easiest debt cures a debtor can ever take.
A few caveat about debt settlement, however:
Debt settlement does not relieve the debtor from the fulfillment of the main obligation. Debt settlement only ensures more convenient conditions for the debtor so that there be higher chances that he will pay his debt.
Debt settlement will damage the debtor's FICO score. Today, a person's FICO score is considered as a summary of his level of of financial diligence. If a person has a poor FICO score, he is said to be financially irresponsible and this gives birth several consequences, like, for example, a more difficult time in acquiring new debts and lower chances of being employed in highly desirable jobs, among others.
Debt settlement may reduce the amount of the debt to be satisfied, however, such reduction must be reported as income won when processing your tax return. As such, you will be imposed a tax correspondingly for the amount you managed to save.
Despite all these, debt settlement still exists as an excellent option for people who are in severe need to acquire some debt relief.
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