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Unfortunately, divorce and credit card debt often go hand in hand. An overwhelming number of people find themselves in a bad position after their marriage ends. Not only are they trying to make it on one income, but many are also faced with a substantial amount of debt that they have no way of paying off. Additionally with that comes a low credit score which can hinder you from buying a home, limit your possibilities of getting a great job or even a bank account; If you have been denied a bank account and would like account, apply here.
Consolidation loans are unavailable for some because they either do not own their home or do not have equity. At this point, many view filing for bankruptcy as the only solution.
For those interested in filing bankruptcy, you should consider this option as a last resort because you will have to live with the lasting effects. Bankruptcy information can stay on your credit report for 10 years, hindering your ability to get future credit, a job, reasonable insurance rates, or even a place to live.
Is there a way out?
Debt settlement might be an alternative for you if you are behind on your payments and see no way of paying off your unsecured bills. Most people who qualify for this have more than $10,000 in unsecured loans, such as credit card balances, medical bills, signature loans, and debts for services.
To help you pay off your balances, a settlement firm will negotiate with your credit card companies to reduce the total balance that you owe. Creditors are often willing to settle for less than the full amount owed if they feel that a person is likely to have their loan obligations cancelled through bankruptcy proceedings. Once an agreement is reached with your creditors, you will make payments until the reduced balance is paid off.
If you have gone through a divorce and credit card debt is getting the best of you, the following information can help you decide if debt settlement might be an option for you.
Signs to Consider for Debt Settlement
- Bills are behind by several months and your creditors will not work with you.
- Unqualified for credit counseling because loans exceed $10,000
- Limited or no assets or equity in a home
In most instances, the settlement process can be completed in two to four years. Most credit card accounts settle on 30% to 50% of the amount owed, but this amount can vary due to the settlement policies of each individual creditor.
Debt Settlement FAQs
1. How does this work?
First, the settlement company will examine your financial situation to see if you would be a good candidate for their program. If you do qualify, then an action plan is outlined to include the length of the process and costs for services.
2. How much will it cost?
A settlement firm’s fees vary by the firm’s policies of extracting payment from a candidate’s process. For instance, some firms charge a percentage of the total outstanding balances. Other companies calculate their fee based on what they will save the customer. If you have been having problems making your payments for an extended period of time, it is already reflected on your credit report.
Once a settlement has been reached with a creditor, your account will reflect that it has been settled, and show a zero balance. When your obligations are paid off, you credit score will slowly improve, which this usually takes about 12 to 18 months. Either way, it reflects much better on your credit report than filing bankruptcy.
3. Do I have to claim this on my taxes?
It's important to remember that any amount forgiven through settlement is considered taxable income. This means that you will need to report it to the IRS come tax-time.
4. What else do I need to consider?
- Check with your state Attorney General and the Better Business Bureau before signing up for a settlement plan. Each source can tell you if consumer complaints are on file.
- Make sure that the company can work with all of your unsecured loans.
- Ask for a breakdown of fees and services associated with your settlement plan.
- Get everything in writing and read over your contract carefully.
5. How do I find a reputable company?
You can find companies that will help negotiate with your creditors online or visit Real-Estate-Yogi's approved debt settlement help page.
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