People get so wrapped up with the benefits of debt settlement they forget to explore the downside.
In this post, I expose and highlight the typical debt settlement consequences and risks.
Consequences and Risk of Settling Debt
- Credit Destruction - Your credit scores and credit history will be toast after pursuing efforts to settle credit card debt.
- Stressful Debt Collection - Part of 99.9999% of debt settlement ventures involves defaulting on your loans. Thus your accounts will be in collections.
- Coming Up with a Lump Sum Cash Payment - Successful debt settlement takes a considerable amount of cash. Instead of making payments to your credit card accounts you will pool all your available income into a fund purposed with accumulating the lump cash payments needed to settle your debt.
- Taxes - If your credit card company writes off debt that amount is credited to you as income and taxable income at that. So if your lender writes off 10,000 and you are in the 33% tax bracket you will owe 3,333 to Uncle Sam.
- You Could Fail - Lots of debt settlement efforts fail big time. Mostly because the borrower has no idea what they took on. They are simply unfamiliar with the process and something they didn't expect happened and they get spooked and abandon the plan.
- Duration of Process - Debt Settlement takes years. It is not pleasant at best. Those years seem a little slower.