Debt Settlement Can Increase Your Income – And the Amount of Income Tax You Owe

With more people struggling to pay their debts, there is an increase in the number of people who are looking to “settle” their debts with their creditors. A debt settlement is a process in which an individual, or a company acting on behalf of the individual, contacts their creditors to request a settlement amount that is less than the total balance owed. It is not unheard of for a successful debt settlement negotiation to result in the individual paying less than half of the total amount owed to fully repay their obligation to the creditor.

For example, if you owe $5,000 on a credit card, negotiating with the creditor may result in you being able to pay a lesser amount – say $2,100 – in exchange for the creditor closing the account and marking it as “paid” or “settled” on your credit report. You no longer have any obligation to the creditor for that particular account.

Creditors are finding that settling debts may be a better option in these difficult financial times than waiting as more people are defaulting on their debts or filing bankruptcy. So, while the creditor receives less than they would if the individual continued to make payments on the account, a settlement is often a better arrangement for the creditor than when someone files bankruptcy because they can’t keep up with their payments. Continue reading →