You may be running a business successfully. As the possibilities of running a business without debt are low, you may have some debts over your shoulders. Times could go better or get worse regardless of our efforts. If your situation is bad, you could not repay the debt. If you stop paying the creditor, the interest and late fee will go high until you close it. Else, you should apply for bankruptcy. However, there is another bankruptcy alternative. You can hire a debt settlement company to negotiate with your creditors on your behalf to reduce the repayment balance to what you could afford at the moment. If the creditor is convinced, you can close the debt by paying only the negotiated amount. Business experts like John Abio have also spoken about debt settlement in their blogs and websites. However, everything lies in the selection of a reliable provider. Apart from this, there are several questions frequently asked by people about debt settlement. The following are the answers to few such questions.
Frequently asked questions about debt settlement
What are the benefits of working with a debt settlement company?
As the debt settlement negotiations are possible to do ourselves, there are certain benefits of working with a professional debt settler. Some of these benefits are as follows,
- They will negotiate with the creditors better than yourself due to their experience. So, the chances of reducing the balance amount to a greater extent are high.
- Since they are in the business for several years, they will have influential contacts and relationships that could close the deal as soon as possible.
- You need not involve in an activity that you are unaware of or inexperienced in.
When should you hire a debt settlement agency?
If you have tons of overdue debts that you could not pay anymore, you can consider hiring a debt settlement agency. People will usually seek the help of such agencies while they are about to bankruptcy. As you can avoid bankruptcy by settling the debt, it is a better option.
When would you have to pay taxes for the reduced balance?
Although you can negotiate the debt to a greater extent, the reduced amount will be considered as your income by the IRS. Hence, you should pay tax on this amount. For instance, if 50% of your outstanding debt is reduced, you should pay the tax for that amount. However, you would have to pay this tax only if your net worth is more than the amount you owe at the time of debt settlement.
Will your credit score get affected due to debt settlement?
Although it is hard to digest, your credit score will get reduced to some extent if you settle your debts beforehand. As the ability to repay the debts is the primary criteria for a rise in credit score, you could not expect the score to be the same while settling the debt. However, you can see a minimal increase in your credit score once the entire settlement is done.