Why Debt Settlement is a Bad Option

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Why Debt Settlement is a Bad Option

Debt settlement is considered a good alternative to bankruptcy, but is it really that
good? Find out the answer from debt management services.

How Debt Settlement Works
Debt settlement companies act as savings account for debtors. They offer to save
up a lump sum of your money, and, once it attains maturity, they negotiate with
creditors to pay off your unsecured debt. It is one of the debt management services
agencies offer to get you out of debt.

Debt Settlement – More Misleading Than Relief
Until now, this debt management option was regarded as a substitute for
bankruptcy. A bankruptcy declaration can have a negative effect on your credit
report and your future prospects for bank loans, insurance and even jobs. That’s
why the debt settlement scheme was devised. But some thing things are too good
to be true.

There are several debt management services agencies who charge exorbitant fees
in the name of the negotiation and debt settlement process. They also don’t offer
you any legal protection against the lawsuits of collection agents. This can make
one question the true objective of these agencies. In fact, due to their steep fee
structure, these debt settlement companies are being outlawed in many states.

Success Rate of the Debt Settlement Process
You might find this surprising, but debt management experts report that the
success rate for debt settlement is very low. Of all the people approaching these
self-proclaimed debt settling companies, only 2% manage to settle their debt
successfully. Most debtors are forced to leave the settlement process mid way
through because they become involved in lawsuits or debt garnishments from

Impact on Taxes
Debt management experts also bring attention to another important issuethe
consequences of tax on forgiven debt. The government considers this forgiven debt
to be income and hence deducts tax from it. So if your debt settlement company
gives you the idea that you can make a good profit, then you are being misguided.
The profit you will make from forgiven debt will ultimately be taxed according to
government income policy.

Debt settlement is a good option only when handled by an efficient and genuine
agency. Check with a licensed attorney who can guide you with good advice.