Debt settlement is viewed as a last resort before filing for bankruptcy. Using a debt settlement company typically involves fees, and you should be aware that sometimes you may owe tax on the debt that has been forgiven through the settlement process. So what is debt settlement, technically? Well, it’s when you’ll make one large payment toward an existing balance, and then the debt will be effectively forgiven by the creditor. Most debt types and most people find that debt settlement isn’t a process that works effectively for their financial situation for a variety of reasons, including how difficult it is to repair your credit after the fact.
Your credit will likely take a major hit when you go through the debt settlement process. Debt that has been forgiven by creditors and accounts you have not made payments on will stay on your credit report for as long as seven years. This can affect your ability to make major life decisions, such as applying for a business or home loan, or something as small as getting an apartment without the help of a guarantor. It’s important to understand the long-term effects of poor credit. Though you may not have to make payments on a debt that has been settled, you may still see the negative after-effects of the settlement long after it has been processed.
Are you curious about the effects of debt settlement on your credit score? Contact Cain and Daniels today to learn more about this debt management technique and how it affects everyday Americans.