Have you started receiving credit card debt settlement notices
in the mail? Have you been receiving collection calls? If this
is the case, you have probably been in debt and been dealing
with financial difficulties for quite some time.
Creditors are sometimes willing to settle the account for a
lesser amount if the credit card account is seriously delinquent
or has been written off. This creditor will usually accept the
settled amount in one payment and the payment has to be made
within a short period of time.
Now you may wonder why a creditor would settle for less than
what is owed. Your credit card issuer is trying to reduce their
losses and they have concerns about you paying this debt. Your
credit issuer feels that recovering some of their money is
better than not getting any of it back. Keep in mind that
accepting a settlement may affect your borrowing ability in the
future with this creditor, but it is a better option than
bankruptcy or doing nothing at all.
A creditor will not usually settle on an account that is
current. Normally, the account has to be at least 90 days
delinquent before they will talk settlement and many credit card
companies will wait longer than that. Here are a few things you
should be aware of before agreeing to a settlement.
1. Your settlement payment may not completely satisfy the debt.
There is a possibility that the uncollected portion of the debt
could be turned over to another collection agency for further
collection activity, but this is not the norm.
2. The IRS considers the amount of the debt that has not been
satisfied as income. Any amount that exceeds $600 will be report
on a 1099, to the IRS, by your creditors. You will be required
to pay taxes on this amount.
3. Know what's on your credit report. If the debt is not on
their at all, it is not recommended that you do anything with
this debt. If it is showing as being "charged off," this is
negative note on your credit report. If you settle, it will be
noted as "settled for a lesser amount" which as also somewhat
negative, but not as bad as doing nothing about it at all.
The best thing to do is to try to deal with the original
creditor. Communicate with them in writing. If they will not
deal with you, contact the collection agency in writing. If at
all possible, try to negotiate a repayment plan on the balance.
If you decide to settle the debt, get the terms of the
settlement in writing to avoid problems on down the road. Once
you have paid the debt, ask for a "release of debt" as proof
that the company has agreed that the debt has been satisfied.
The best thing that you can do for yourself is to examine the
curcumstances that caused your debt to get to this point and to
put a plan in place that will prevent you from ending up there
again.
About the author:
Marjorie Salada is the owner of
debtmanagement1.com, a website that contains
information on getting and staying out of debt. If you are
looking for information on debt consolidation, debt settlement,
debt counseling or how to manage credit card debt this site is
an excellent resource.
