Christian Debt Consolidation Guide - Debt Settlement
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Christian Debt Consolidation Guide - Debt Settlement
One of the most useful Christian Debt Consolidation strategies is the process of negotiating with your creditors to settle your unsecured debts for “less than you owe”.
Now this is not for the faint hearted and if you are suffering stress due to high levels of personal debt emotions will run pretty high. For this reason alone handing off debt settlement to a professional makes perfect sense. But there are other reasons which we shall cover here.
Debt settlement through negotiation is an aggressive, yet ethical approach to paying off your creditors at reduced amounts and avoiding bankruptcy. To enter a Debt settlement program you are typically required to have a minimum of $10,000 in unsecured debts.
If you have read some of our other Christian Debt Consolidation articles you will know how important it is to ensure these programs are tailored to your personal financial situation.
Debt settlement firms are typically “for profit” organizations, and therefore, will not provide the services that credit counseling agencies do, such as budget planning and financial counseling. For this reason you are better seeking advice from one of a “not for profit” organizations first and contacting a debt settlement only if it is part of Christian Debt Consolidation solution. A debt settlement firm will lower your monthly payments by requiring just one “reduced monthly settlement payment” as part of their program design.
Debt settlement programs are suited to those individuals under serious financial strain and who are finding it almost impossible to meet even their basic financial obligations. Creditors will actually settle for less than outstanding balance owed because they realize a consumer could file bankruptcy. This carries a great risk for them and they will often settle for something rather than nothing. For this reason accepting a reduced amount as a result of polite negotiation is often in their best interest as well as yours.
Whilst debt settlement is an excellent strategy to get out of debt in a relatively short amount of time, and with the least cash outflows of all methods (bankruptcy excepted - but make sure you read the Christian Debt Consolidation Guide to Bankruptcy) there are disadvantages.
The process requires that you commit to saving money and setting aside “lump sums” so that your accounts can be negotiated for reduced amounts.
A creditor will not negotiate on an account whilst it is fully paid. Accounts must be allowed to lapse as a result of missed payments as part of the debt settlement program. Delinquent and missed payments are reported by creditors to the national credit bureaus, and this is ultimately harmful to your credit rating.
Also, in a classic twist of irony, the IRS considers a debt forgiven to actually be taxable income! You may find it hard to believe but the IRS will expect to receive the appropriate amount of tax for the amount written off at the end of the tax year. This is often overlooked and you would do well to inquire about this in detail when discussing your situation with the debt settlement firm. This can also necessitate seeking the advice of a tax professional.
Clearly there is a cost attaching to these financial services which has to be taken into account as in the short term you are actually increasing your debt! This is why we recommend starting with a not for profit organization (that doesn’t mean its free by the way) as they will be able to put forward a solution using a combination of debt reduction techniques and strategies. In this way you only pay for what you need and can be confident the plan is right for you.
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