How Debt Settlement Works
Debt settlement typically follows these steps:
- Assessment: Evaluate your debts and determine if settlement is a viable option.
- Negotiation: Contact creditors to propose a settlement offer. Creditors may agree if they believe it’s the best way to recover part of the debt.
- Agreement: If a settlement is reached, ensure the terms are documented in writing.
- Payment: Make the agreed-upon installment payments or lump-sum payment to settle the debt within the agreed upon timeframe.
Key Considerations:
- Credit Impact: Debt settlement may significantly lower your credit score, as creditors may report the account as "settled" or "paid less than full balance", rather than "paid in full."
- Tax Implications: Forgiven debt may be considered taxable income by the IRS. Balances forgiven of more than $600 will generate a 1099-C. We encourage you to contact your tax professional regarding tax related questions.
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