The most widely known choices for getting out of debt are credit counseling or a debt settlement plan. But you can “DIY” more easily than you think. Many consumers believe they can’t settle their own debt. But after looking into all of your choices, you may decide to pursue a solution you never considered – or even knew about. Whatever choice you make, it’s time to dig yourself out of debt.
Debt settlement offers
A debt settlement plan is a popularly advertised way of paying back debt. But you may not want to jump too quickly at the first offer.
If you have found yourself behind on payments and debt collectors are calling, it might be a good idea to watch your mail for offers from your creditors to settle your debt for less than you owe. Creditors will send out some exceptional management offers, but those offers seem to come and go, based on current policy. There are no hard-and-fast rules on what to expect.
Depending on how far behind you are, the offers will differ. Some creditors will agree to let you fulfill your debt obligation for as little as 15% of what you owe. But most offer terms requiring about 40% of the balance.
With the right approach and resources, settling your debt for less than you owe is possible.
But be aware of these negatives:
1. Creditors are more likely to settle a debt if you are 90 days or more delinquent on the debt.
2. Being delinquent also means you might be sued, lose in court, and have a judgment or wage garnishment against you.
3. You need cash on hand to settle when the right offer arrives for you. While some creditors may accept payments over time, the best offers typically come to those who can pay the management quickly.
4. Get the agreement in writing before you pay. Without a written agreement, some people have found that collectors will circle around years later and say they never struck a deal and you still owe the remaining balance.
5. If you are not insolvent, and if you owe more than you are worth, after you settle your debt, you may find yourself paying income tax on the amount of forgiven debt, just as if you had earned that money. (If you are insolvent, the IRS has a special form to waive the income tax.)
If you have the discipline, and can save money while paying down your debt, working
with an expert coach is a reasonable approach to consider.
Steve Rhode is a consumer debt expert who has been helping people find good solutions for bad debt problems since 1994. Having lived through financial problems, which led to his bankruptcy in 1990, he decided there must be better ways for people to face debt issues.