How Does Debt Settlement Work?
When you are faced with significant credit card and/or tax debt, you find yourself searching for the best way to break free from it. Debt can be overwhelming and managing it can be tricky. Making only minimum payments feels like treading water at best and you have difficulty getting the balances down. As the debts mount, you search for ways to finally get out from under the debt and debt settlement is a popular option.
Debt settlement is a process by which you or a company working on your behalf attempts to settle the debts you owe by negotiating lower interest rates, or maintaining that you should pay less than you owe because you cannot afford the current payments or overall debt. These negotiations can be made with each of your credit card companies. Debt settlement is often seen as a last resort for those who have exhausted other options (debt consolidation loan, credit counseling, home equity loan, etc).
Is a Debt Settlement for You?
As you consider debt settlement as a possible solution, you will likely find many companies that make lofty claims that they can reduce your debt quickly and easily. Be mindful, however, that this process is far from easy. While debt settlement companies may be able to successfully negotiate forgiveness for some of your debt, these debt settlement companies often charge high rates for their services, which often negates the progress you make with your debt reduction.
In addition, debt settlement nearly always has a very negative impact on your credit score, which can make it difficult to get credit in the future for a house or a car. Debt settlement companies make lofty promises that they often cannot keep and it is not unusual for individuals to come out with even more problems than they started with.
Tax Implications of Debt Settlement
One of the most important things to note about debt settlement is that there are tax implications. If more than $600 of debt is forgiven, it becomes a tax event and is considered taxable income. So, if you had $15,000 in tax debt and $7,500 was forgiven, that amount would be considered taxable. These changes to your tax status can cause you to owe more to the IRS, which creates another problem for you.
Success Tax Relief: Help With Tax Debt
If in addition to your credit card debt you also have concerns about your mounting tax debt, consider getting advice from a reputable tax firm that can review your situation and give you sound and honest advice about next steps. As with debt settlement, there are options for those who are not in a position to pay their tax debt. Installment Agreements and Offers in Compromise are programs that the IRS offers to help taxpayers who are not able to pay their full tax debt at once (or at all). Success Tax Relief has 30 years of experience working with taxpayers and the IRS to find solutions for what might seem like hopeless situations. Contact us today to discover whether we can help you find relief from your tax debt.