23 Aug What Is Debt Settlement and How Does it Work?
If you’ve been researching debt relief options, you’ve likely come across the term “debt settlement” before. If this term sounds confusing or complicated to you, you’re not alone. Although settlement can be a very effective method eliminating debt, many people are unfamiliar with the process. The experts at Pivotal Wealth have a great deal of experience in handling debt settlement cases, so today we’re explaining the process in a way that anyone can understand.
What Is Debt Settlement?
Debt settlement, or settling a debt, involves paying a lump sum of money in order to resolve your debt. By negotiating with your creditors and agreeing to pay off your debt in one lump sum, you can get rid of the debt for good. The lump sum you pay will typically be lower than the amount of money you owe.
Debt settlement is a common form of debt elimination that helps many Americans become debt free. It’s always best to get help with debt settlement because the process can vary widely from person to person, depending on the type of debt, the creditor, the debtor’s credit health, and other factors.
How Does Debt Settlement Work?
Debt settlement can be broken down into three steps:
The first step in a debt settlement is to hire a debt settlement company. Using an attorney based company is the best choice in most cases. With an attorney based company, the process will be handled under the guidance and support of experienced lawyers throughout every step of the settlement process. However, it is important to note that some creditors may not be willing to negotiate at all, so you must be prepared for this possibility.
The second step in debt settlement is to save money in order to pay a lump sum back to the creditor or lender. In the period of time it takes you to save up the lump sum, you won’t be making payments on the debt, which could hurt your credit score. This is a common side effect of debt settlement.
The third step in the debt settlement process is to pay the agreed lump sum using a designated savings account or a third party escrow account. Once the lump sum is paid, that debt will no longer be attached to you. However, you should be aware that forgiven debts can equal taxable income, meaning you’ll have to pay taxes in addition to the lump sum.
Debt Settlement with Pivotal Wealth
Debt settlement can help you to lower your total debt amount, avoid bankruptcy, and get creditors and collectors off your back. When you work with a reputable firm of tax professionals like Pivotal Wealth, you won’t have to worry about the debt settlement process. If you have questions about how to eliminate debt and build your wealth, we can help! Contact us to start your jou