Debt Settlement

Debt settlement typically is used for unsecured debts, such as:

• Credit cards
• Personal loans
• Medical bills
• Store cards
• Some private student loans

Generally, mortgages, auto loans, federal student loans, past-due child support or alimony payments are not eligible for debt settlement.

Debt settlements usually take between two (2) and four (4) years to complete, but the timeline depends on how many creditors are involved, the amount of debt you have, and how quickly you can fund the settlement amount. A single account may take less than 12 months to settle, but those involving collections or legal actions can complicate matters.

Debt settlement can negatively impact your credit score, especially in the short term, but if you are behind on your payments, your score is likely already taking a hit.

The good news is that you can recover and improve your score over time by paying bills on time, keeping your credit utilization score low, and gradually rebuilding your credit with secured credit cards or small loans.

Possibly. Forgiven or canceled debt is treated as taxable income by the IRS and most states. In most cases, creditors will send a Form 1099-C after the settlement if more than $600 was forgiven/canceled.

Depending on your situation, however, you may qualify for an insolvency exception, but you’ll need to file IRS Form 982 with your tax return to claim it.

Yes, you absolutely can settle your debt on your own. Just be prepared to deal with a lot of stress and pressure from creditors. Some may even refuse to negotiate with you.

Many people choose to work with a debt settlement company because they don’t have the time or patience to deal with creditors or the discipline needed to save the settlement funds required to make an offer.

The amount you’ll save varies, but many people resolve their debt for 30% to 60% of the original balance (before fees and taxes). Your actual savings, however, will depend on your total debt amount, how delinquent your accounts are, who owns the debt, and whether you can pay a lump sum.

Many people mistakenly believe consolidation and settlement are the same, but they are two very different strategies to resolve debt.

• Debt consolidation = combining debts into a new loan or payment plan to repay the full amount owed.
• Debt settlement = negotiating to pay less than the full balance due.

Consolidation is a good option if you have decent credit and can afford payments. There’s also less of an impact on your credit score. Settlement, however, may be a better option if you’re behind on payments, facing collections, or considering bankruptcy.

Settled accounts generally stay on your credit report for up to 7 years from the date the account first became delinquent and was never brought current again. The timeline is based on the original delinquency date, not the date you settled the debt.