When you borrow money, whether from a credit card company, a mortgage company or a department store, they loan it with the intention that they will get it back. Many consumers borrow money and realistically they will never be able to pay it back.

Everybody chooses to handle his or her debt differently. Some people choose to file bankruptcy and have all of their debt wiped clean. Some people choose to make minimum payments every month and some people choose debt settlement.

Whichever path you choose will have both pros and cons. If you choose to file bankruptcy, you will not have to repay your debt; but creditors will probably frown on you for the next 7-10 years.

If you choose to make minimum monthly payments on your debts, it will be years before you ever pay them off. Some people will never get their debts paid off using this method of payment.

Other people choose debt settlement as a way to pay off debt that has become too much for them to repay. They end up paying less but they also end up with a negative score on their credit report. This is where a lot of people get confused about debt settlement. A lot of companies make it sound like you pay less to the company and all is forgotten.

Well, that’s not exactly true. First of all, it is extremely difficult to get a credit company to settle a debt with you. It takes a lot of persistence and determination. But on the other hand, there are plenty of people that have gotten a creditor to settle their debt.

Say you owe $8,500 to a creditor. You’re in so much debt that you can’t even make the minimum payments anymore. There are several delinquent payments and the company has tried to contact you, but there’s no luck. They can see that they’re probably going to have to turn the debt over to a collection agency.

But they don’t want to. A collection agency will cost a lot of money and even then, the original creditor will not collect even close to the entire debt owed to them. They may never even collect a penny on it. This is when you call the creditor and ask them to settle your debt. Or maybe you’re working with a credit repair company and they intervene for you.

It sounds good. Instead of paying $8,500 you only pay $3,200 and the debt is settled and gone forever. What a good deal. Well, when you pay that $3,200, true the debt is settled and gone forever. But it still shows up on your credit report. Better yet, it still shows the original amount of money that you owed to that creditor; and it shows that they took a debt settlement. This information will stay on your credit report for the next 7-10 years.

So now when a prospective creditor pulls up your credit report, they see that you had $8,500 worth of debt, but you only paid back $3,200 of it. What do you think that new creditor is going to think of you not paying off your entire debt? Right, he’s going to see that you weren’t responsible enough to pay off what you spent. That is not a good thing when you’re trying to get new credit.

The other thing that nobody tells you is what happens to that left over balance. After you paid your debt settlement of $3,200, there was a balance of $5,300 left over. That company has now written off that amount of money as if they gave you a gift, a $5,300 gift. When it comes time to do taxes, you now have to claim that money as income.

Now you have $5,300 worth of income that you have to pay taxes on and just might bump you into the next tax bracket. So when you get down to it, is it really worth it to have a debt settlement? Or, would it be more worth your while to pay a little extra on the debt each month in order to show consistent payments and an effort to pay back your owed debt.

Be careful when it comes to repaying your debt. Fancy wording or part truths can completely change your understanding of something. If you’re considering debt settlement, maybe you should reconsider.

Click here to discover my current SolveYourProblem recommendation and choice pick for the fastest, easiest and best credit repair solution you'll find anywhere for do-it-yourselfers. Get it and reward yourself with the many benefits of a higher credit score.

Click here for my current recommendation and choice pick if you want your credit repaired for you. Get the best results at the best value.

# # # # #

by SolveYourProblem.com : 2007

> Home > Credit Repair & Credit Scores: Main Page