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If you have a large debt to pay, it’s time to explore debt relief options. One possibility is debt settlement, but it has its pros and cons. Learn how debt settlement works and how it can impact your financial circumstances to help you decide whether this debt alternative is right for you.

What Is Debt Settlement?

Under a debt settlement, you agree to make a lump-sum payment or installment payments for less than what you owe in exchange for closing out or settling the debt. Third-party companies negotiate with your creditors to obtain lower debt amounts to settle your accounts. While they’re negotiating, these companies may require you to pay into an account to save for the lump-sum payment. They then charge you fees for their negotiation and settlement services.

debt-relief-Honolulu-HIBenefits

Using debt settlement can reduce the amount you owe, even after paying the fees. It also stops bill collectors and creditors from contacting you, and you might be able to avoid filing for Chapter 13 or Chapter 7 bankruptcy. Unlike debt collection lawsuits, there’s no public record of debt settlement agreements.

Drawbacks

Achieving debt relief through a settlement can take between two to four years. There’s no guarantee the creditor will agree to a settlement, and if you stop making regular payments, your credit rating could drop. When the creditor forgives or cancels part of your debt, you may have to pay federal income tax if the IRS considers it taxable income.

 

If you’re looking into debt relief, consult Greg Dunn, Bankruptcy and Debt Relief Attorney in Honolulu, HI, on whether debt settlement or other alternatives would work best for you. He offers more than 20 years of experience guiding clients through their options to achieve financial freedom. Visit the firm online for more legal services information, and call (808) 524-4529 to take the first step toward eliminating your debt.

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