Credit Card Settlement: Pay-Off vs Full Settlement Overview:
Any offer that enables you pays less than what you owe is certainly a tempting option. It may be one of the best options if you are in major debts. However, debt settlement has downsides, as well which includes the significant damage to your credit score and additional tax. Hence, it is advisable to opt for full settlement to avoid all these pitfalls.
The fact that you settled for a debt than your principle amount is bound to have a negative impact on your credit score. This is bound to remain in your report for a time frame of seven years. Since this is a negative point in your report, lenders in the future will give a second thought before lending. On the other hand, if you are considering debt negotiation, then ensure that you get into an agreement with the debt negotiation company or with your creditors that the account will be completely removed from your credit report. The account should state that it is “Pain in Full.”
While you may avoid paying tax declaring insolvency, you may have to face tax issues when you consider debt settlement.
Long Term Financial Consequences:
While debt settlement will cost you less in the beginning, it’s going to make your pocket heavy in the longer run. Not only does one have to pay tax on the settled amount, but also will face a problem in availing loans in the future.
Debt Settlement Firms:
Debt settlement firms settle your debts on behalf on you. Unfortunately, a few companies do more harm than any good to your profile. They settle your debts by encouraging you to save and then they clear your debts from the amount saved. This is bound to raise lawsuits and also will have a negative impact on your credit score.
Credit counselling is one option that will help you plan your debt. They will draft a smart plan that will help you lover your debts so that within a stipulated time you can get out of financial mess.
Another option is bankruptcy, while bankruptcy us bad for one’s credit score yet the issue of tax on debt settlement can be avoided. Bankruptcy, on the other hand can be the best option if you do not have cash to settle.
Now you know the impact of bankruptcy and debt settlement on your profile. Opt for the one which best solves your problem.