Taking Care of Business

[wlotus]

When I decided to sign up for debt settlement through USA Debt Elimination, I was looking for a way to pay back my debts in a reasonable amount of time, even with the economy being so unstable and my money being much tighter than it had ever been. Let's face it: if you want to remain financially solvent after losing a job, you have to tighten your belt and cut your expenses. I was unwilling to neglect my debts, though. Paying back the money I owe is important to me for moral reasons, not just for the sake of having a clean credit history. So when I learned about debt settlement and had the opportunity to enroll, I jumped at the chance.

When I went through the enrollment process the numbers excited me. Before I was looking at a maxed-out budget and over 40 years of repayment ahead of me. Now that I am enrolled in the program, my monthly payments are $70 less than they normally were, which gives me some financial wiggle-room. Furthermore, if the settlement process meets the conservative estimate the program uses as an example, I will be out of debt in five years. I can't help but dance about that. :-)

It's been exciting to share that information with other people and see them start on a similar path. You or someone you know can get more information, too. As the economy continues to flounder, I suspect debt settlement will become more popular, both with overextended consumers and creditors. After all, creditors would rather get some money than none at all. And who wouldn't want to get out of debt in five years or less?

Comments

[gwendally.livejournal.com]

Be careful here: there are two major problems.

1.) If you are not actually insolvent, that is, your assets are greater than your debts, then you are liable for income taxes on cancellation of debt.

That is: if you have a retirement account worth $50K and real estate worth $100K and you owe $80K on the real estate and $40 in credit cards, you are not actually insolvent. You have a positive net worth. If you have debt forgiven of $10K on the credit cards you will have that $10K added to your income and have to pay taxes.

Cancellation of debt is income to the person who no longer has to pay the debt.

2.) This is nearly as bad to your credit score as bankruptcy, but way harder. I suppose it has its place in the scheme of things, but the answer isn't usually to default on debt (or, as they put it, negotiate for a settlement) but rather to find a way to make more money. Lenders will accept lower payments for a while if they think they can be paid off eventually when you're back on your feet. Just be clear with yourself: "negotiating a settlement" means the same thing as "not paying what you owe." In this case it means "not paying what you owe, and having a broker get a slice, too."

Again, I suppose there's a place for this. If you have a lot of debts and just can't manage to work with all the various lenders I can see why a broker might be worth paying.

I wonder, though, if Debtor's Anonymous might have more useful resources?

I don't mean this to be such a downer. I'm just giving feedback to fill in what you weren't saying. I agree that a plan where you go from in over your head to out of debt is a plan worth making!

[wlotus.livejournal.com]

In my case, Debtor's Anonymous wouldn't have been better. Of all of the options I explored, this one was best for my long-term goals, as I don't have a problem making and keeping a budget and living within my means. But when one's means are radically altered for the forseeable future, radical actions are required.

The slice the processing company gets is far, far less than the interest I would end up paying to the credit card companies over the next three or four decades, if I don't settle my debt. Quite frankly, I'd rather pay the settlement company.

[wlotus.livejournal.com]

Thank you; that clarified/confirmed things for me, as well.

[gwendally.livejournal.com]

I'm a CPA: I'm the one that GIVES proper tax advice. The debt isn't taxed if you are insolvent at the time the debt is forgiven. But if you're not insolvent, it is.

I'm not as sure about the credit rating, but I am sure that "delinquency" isn't the only thing that shows. There's a line about "paid as agreed" which can be modified to something along the lines of "negotiated settlement". Don't fool yourself that writing down debts leaves your credit rating unharmed, although I will certainly agree that it's better to get things cleaned up and get on solid footing going forward.

I really am not an expert in arbitration/debt settlement and I'm unclear how debt magically goes away. Is this just about getting interest rates written down and the principle remains unchanged? That looks like a lovely idea and I'd recommend it.

For any other method, though, I'd still council to be careful. Perhaps the "problems" I referenced above aren't problems for you, but they are potential pitfalls.

I'd add that I'm not AGAINST this, I'm just cautioning. I actually like the idea of people going on this sort of plan, because my experience is that the only way to get out of debt is to work your way out. If you do it via bankruptcy or windfalls then you've not changed your habits and you're right back in debt again inside of a year. I just weep for all the people I've seen "get out of debt by refinancing." OMG, it's just brutal to watch them drown.

[chinook-wind.livejournal.com]

I did the same thing, with Money Management International, and I am delighted with it. Five years or less, and I am fully out of all consumer debt (which doesn't include the house). It's going to be a tough five years, but I'll make it, and I'll come out the other side wiser, stronger, and debt-free!

[wlotus.livejournal.com]

Oooo, congratulations! I'm excited for you!