Debt Settlement
A company that provides settlement will negotiate with your creditors to accept a lump sum payment, less than what you owe. Debt settlement can take up to three years on average. The creditor accepts payment forgiving the balance. Once the settlement is processed your balance will be reported to the credit bureau as settled, but all records of late or missed payments will remain on your report. Additionally, you may be liable for taxes on the unpaid or forgiven portion of that debt.
A debt settlement plan requires you to make a monthly payment into an escrow account, which builds up to become your settlement payment. You pay each month for a set period until you have accrued enough to make a viable settlement offer to your creditors. While you are saving for the settlement payment you stop making monthly payments to your creditors. This can result in your accounts going to collections, which means you could begin to receive collection notices and calls. Once your accounts go to collections, you are also vulnerable to potential legal action by your creditors even if you are enrolled in a settlement program. Because of the risks involved, settlement is best suited for people who require debt help for ten thousand or more in unsecured debt.
