subject: Debt Settlement: An Effective Way To Get Rid Of Financial Obligations [print this page] Debt Settlement: An Effective Way To Get Rid Of Financial Obligations
After the liquidity crunch and recession of 2007, price of daily commodities have soared up. As a result, many consumers are becoming defaulters and are forced to opt for bankruptcy. To avoid such situation, various debt settlement companies have extended their helping hands to lower the outstanding credit balance. Recently, the Federal Trade Commission has passed a new law. As per the new law, no settlement company can collect upfront fees from the clients, until their debt gets actually settled. Thus, the new laws make the settlement process much more legitimate. Debt Settlement - What it is A debt settlement is a program, which can lower the outstanding credit card balance of an individual. For doing this, the person has to enroll in a debt relief company. The representative of the company will contact and negotiate with the creditors, on his behalf. After negotiation, the outstanding debt may get reduced by 40% to 60%. However, he needs to pay taxes to the IRS, for the forgiven portion of the debt, if it exceeds $600. A fixed amount every month has to be deposited with the settlement company every month. When the amount will build up into a lump sum, the company will pay the creditors. However, not all people will be qualified for a debt settlement program. Eligibility criteria The eligibility criteria for a settlement program are as follows: * The outstanding debt balance should be at least $10,000 * The consumer should have exceeded the limit on his credit cards * The person cannot afford to make more than the minimum monthly payment Benefits of the program Some advantages of debt settlement program are as follows- * Lower monthly payments: Once a person opts for this program, he does not have to make monthly payments to his creditors. He has to make direct payments to the settlement company. The payment amount per month also becomes lower. * Reduction of outstanding balance: Once a person opts for this program, his outstanding debt balance gets reduced by 40%-60%. However, the forgiven amount will vary from one lender to another. * Probable end of collection calls: The creditors may stop making harassing calls or taking any legal action against the person, once he opts for settlement.
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