Broomfield debt settlement negotiators are here to help you get out of debt.  Colorado Debt Help offers a variety of solutions.  The right solution depends on your debt, goals, and assets.  One solution is debt settlement.

What is Debt Settlement?

Debt settlement is when you negotiate the settlement of an outstanding debt with your creditor.  Ideally, you settle the debt for less than you owe. For example, assume you owe Capital One $25,000 and have $5,000 in the bank.  Instead of spending the next 20-25 years trying to payoff the $25,000 debt, you might approach Capital One and see if they’ll settle the debt for $5,000.  You pay Capital One $5,000 and Capital One agrees to forgive (i.e., not collect) the remaining $20,000.  In an ideal world, it’s a great solution. In reality though, this situation rarely works.

Debt Settlement Requires Default

Broomfield debt settlement negotiators rarely see the above scenario work. There are many reasons why. First, you have to let you debt with Capital One default.  This means you stop paying the credit card and wait six months for Capital One to “charge off” the debt.  A “charge off” is when Capital One decides the debt is in default and sells it to a collection company.  When a debt is “charged off” it hurts your credit.  A “charge off” can drop your credit score by 30-60 points.

Once you have the “charge off”, then you can start debt settlement.  Creditors don’t negotiate until their is an official “charge off”.  Thus, you have to take the credit hit in order to negotiate.

Problems with Debt Settlement

Creditors will not accept low-ball offers on debts recently charged off.  Creditors like to obtain at least 75% of the debt when negotiating a recent debt.  This means you have to wait a couple of years if you want to settle a debt at 25% of the original value.  During that time, expect many collection calls and letters.  Also, you might get sued while waiting for the creditor to accept your low offer.  The problem with getting sued is the creditor can garnish 25% of your wages.  Once garnished, Broomfield debt settlement negotiators have found that creditors have no interest in settling the debt.

Suppose you finally get a settlement at a price you can afford, it doesn’t mean your credit score goes up. According to The Balance, paying a charged off debt does nothing to improve your credit score.  This is because the charge off remains on your credit for seven years along with the missed payments that lead to the charge off.  The only way to improve your credit score when settling a debt is to request a “pay for delete.”  A pay for delete involves offering to pay the account in full in exchange for having it removed from your credit report.  However, the creditor gets to decide whether they will delete the debt or not so don’t get your hopes high.

The final problem with debt settlement is you have to pay taxes on the amount of forgiven debt.  In our example above with Capital One, you would have to pay income tax on the $20,000 of debt you avoided to pay.  In many cases, debt settlement creates a tax problem.

broomfield debt settlement negotiators
Contact a Broomfield Debt Settlement Negotiator

Colorado Debt Help can help you with debt settlement.  We can advise you if debt settlement makes sense for your situation.  If not, we can discuss other solutions like bankruptcy, debt consolidation, credit repair, debt management plans, and credit counseling.  Our first appointment is free so call today.