Debt settlement through a third-party company can be an asset to you if you find yourself in a position with accumulated debts whose payments outweigh your ability to pay them off each month.
They do this by negotiating your debts with the creditors to find a settlement that is a reduced sum rather than a monthly payment. You pay this off through the third party over a period of time.
This is a short guide to debt settlement, which kinds of debt it’s useful for expunging, and how it can help you reduce your financial burdens in the long run.
Table of Contents
Types of debt
There are two types of debt that are principally serviced by a debt consolidation service. They are unsecured debts and tax debt.
Both present different issues for the debtor and settler and must be handled accordingly in order to get out from under the burden they each represent.
Debt that you’ve accumulated that is not protected by a guarantor differs from debt that has a guarantee or is associated with collateral on an asset to back it up. Mortgage debt, for instance, has your house as collateral, guaranteeing the creditor a tangible return in the event that the debts cannot be paid.
Unsecured debts, if left unpaid, can result in the creditor seizing any of your assets to pay them off. These debts include loans, both personal and educational, and credit card bills.
Any debts that you’ve accrued for personal reasons such as a divorce, accidental overspending, a death in the family, or other unfortunate circumstances also fall into this category.
Reasons to accept help for unsecured debt
You would seek a debt consolidator’s services for this kind of debt for several reasons. First is if you find yourself unable to make the payments and acknowledge that without consolidation, you will have to declare bankruptcy and risk having your other assets seized.
The other reason is that you may have calculated your payment plan and discovered how much extra money you are paying to the creditors to keep up your schedule of minimum payments on the amount that you owe.
The other kind of debt that a debt consolidator primarily deals with is tax debt. This is an even more serious financial situation to be in.
Even if it wasn’t purposeful, you can still go into debt with the IRS for misrepresenting the amount of taxes you owe or underpaying them. Having a delinquent account with the IRS means that your creditor is the entire United States government.
Taxing authorities have much more power than the average creditor to get what you owe them. This is why it’s so important to resolve and eliminate this debt as quickly as possible.
How debt settlement can help
Programs are available to settle your debt no matter which type of debt you have accrued. The strategies are slightly different, but the goal is the same: to solve your financial burdens and get your life back.
How to deal with unsecured debt
For this type of debt, a debt relief or settlement company will negotiate your debts with your creditors for you, either to get you a better payment plan or reduce the amount you owe.
Their fee is usually a percentage of the amount that they save you.
The way debt settlement works in this case means that the debt settlement company and the creditor will come up with a lump sum that you owe in an amount less than the total debt. While they are deciding on the specific numbers, you will make payments towards this sum through an agreed-upon third party.
Once they settle, you then have to agree to the settlement terms in order to start the new payment plan. This starts with making a payment to your collector so that the debt settlement company can officially represent you.
You will then make payments on your new sum to them and not worry about creditors breathing down your neck.
If successful, debt settlement for unsecured debts can reduce the amount that you owe in the long run and prevent you from having to file for bankruptcy.
Just keep in mind that debt settlement proceedings are no guarantee. If you have multiple sources of debts, the debt settlement company may not be able to settle them all at once.
How to deal with tax debt
The process that a debt settlement company uses to tackle tax debt is similar but on a different scale and with different specific strategies. Solving tax debt focuses on audit defenses and tax resolution.
Strategies to resolve this debt include offers in compromise, which is similar to regular debt settlement in that the settlement company and the IRS would agree to resolve your liability for a lump sum less than the total you owe.
Another opportunity for settlement is in installment agreements, which are a negotiated payment plan between your settlement company and the IRS to pay off your debt a little at a time. This will help you avoid having your property and assets being seized by the government.
These and combinations of other forms of legal negotiation are available to experienced debt settlement companies in negotiating your debts with the IRS and getting you out of their stranglehold.
Whether you have accumulated debt through a divorce, rampant spending, credit card payments or mortgages, or through negligence with your tax documentation, you’re probably looking for a way to resolve it.
A debt settlement company can resolve this financial burden for you by negotiating with your collectors to reduce the sum that you owe and create a new payment plan that matches your needs.
If you’re facing bankruptcy because of your monthly debt payments, seek out a seasoned debt settlement company so that you can use their expertise to lift this burden from your shoulders and get your life moving forward again.