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Credit Card Debt Settlement
By: Marjorie Salada
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 http://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.
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