Debt Settlement -- Why the Critics Are Wrong
Below is a MRR and PLR article in category Finance -> subcategory Personal Finance.
Debt Settlement: Debunking the Critics
Introduction
With changes in bankruptcy laws making it harder to qualify for Chapter 7, more people are exploring debt settlement as an attractive alternative. Despite criticisms, this option offers benefits that critics often overlook. Here, we address the common criticisms and highlight the positives of debt settlement as a viable method for debt reduction.
Why Debt Settlement Is Gaining Popularity
The bankruptcy law enacted on October 17, 2005, has made it challenging for consumers to file for Chapter 7 bankruptcy, where unsecured debts are completely dismissed. Now, individuals with incomes above their state’s median or those who can repay at least $100 per month are steered towards Chapter 13 bankruptcy, requiring them to repay a portion of their debts over 3-5 years under strict budget constraints. This is why debt settlement is appealing to many as a more flexible alternative.
Addressing Common Criticisms
1. Impact on Credit Score
Critics argue that debt settlement negatively affects your credit score. However, when overwhelmed by debt, maintaining a high credit score shouldn't be the priority. If you're struggling to keep up with payments, credit score impact becomes secondary to achieving financial freedom. Remember, most debt reduction programs affect credit scores, so it’s a trade-off worth considering.
2. Taxes on Canceled Debt
Some suggest you might have to pay taxes on the forgiven portion of your debt. While this is technically possible, it’s unlikely for those with negative net worth, as the IRS allows insolvent taxpayers to exclude such income. Even if taxes are due, it’s a small price to pay for significant overall savings.
3. Continued Collection Efforts
Critics also point out that debt settlement doesn’t stop collection activities or lawsuits. However, these are inherent risks of being in debt. Debt settlement offers a way to minimize these issues through negotiated agreements. While lawsuits might occur, they can often be settled outside of court, especially if you actively engage in the process.
Advantages of Debt Settlement
1. Significant Savings
Debt settlement can save you thousands compared to other methods, excluding Chapter 7, which has become harder to access under the new law.
2. Faster Debt Resolution
You can typically resolve debts within 2-3 years, quicker than the 5-9 years often required in credit counseling programs or Chapter 13 plans.
3. Control and Privacy
You maintain more control over the process, and unlike bankruptcy, your case isn’t a public record, safeguarding your privacy.
4. Retained Dignity
For many, debt settlement feels like an honest solution compared to the perceived failure of filing for bankruptcy.
5. Flexibility
Debt settlement allows for adjustments in monthly contributions based on financial changes, unlike fixed-payment methods which offer little leeway.
Considering the Do-It-Yourself Approach
If you choose to pursue debt settlement on your own, here are some tips:
- Use phone privacy features to manage creditor calls and engage only when prepared.
- Develop a robust plan for saving up the amount required for settlements, keeping funds separate.
- Always get settlement agreements in writing before making payments.
- Obtain a zero balance letter from creditors post-settlement to prevent future issues.
- Familiarize yourself with consumer rights via resources like the Federal Trade Commission's website.
- Avoid accepting any terms that are beyond your financial capability.
Conclusion
Thousands manage their debts independently every year without legal interventions or bankruptcy. If approached with discipline and determination, debt settlement can lead to financial liberation, leaving you with the satisfaction of having resolved your debts. Here's to your journey towards debt freedom!
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