Accepting Debt Relief for What It Is

The instant gratification of fast food, fast entertainment and ready accessibility of goods and services has trained us to expect what we want, when we want it. In all fairness, this isn’t a bad thing. There is much to be said for getting the things we need to make our lives easier and more rewarding right away. However, when that desire leads to incurring insurmountable debt, it becomes a problem. Ironically, in our zeal to put those financial obligations behind us, we can expect similar miracles. But, we have to accept debt relief for what it really is and how it works.

It Takes Time

In most cases, outsized debt takes some time to accrue. And, just as it came upon you gradually, you’re going to have to give it some time to retreat. Debt relief works, but it’s a process. And, like every other process it must be worked in a specific fashion to ensure its efficacy. Further, there are some rather important consequences you’ll face and it isn’t necessarily the best solution for every situation. According to Andrew Housser, co-CEO of the debt settlement firm Freedom Debt Relief, gaining a clear understanding of these points up front will save you a lot of anxiety.

Is It Right for You?

The first question you should seek to answer before deciding to go this route is whether relief is the best solution for your particular set of circumstances.

Reputable debt settlement firms will take some time to get a clear understanding of your situation before prescribing a course of action. In some cases, something like debt consolidation might be a better avenue to resolution for you. If you find yourself with a representative of an organization who goes straight to signing you up without taking some time to understand your needs, back off and seek another firm to represent you.

What Are the Consequences?

Anyone who tells you they can settle your debts for “pennies on the dollar without any consequences” is lying. There’s no way to sugarcoat it. When creditors forego a portion of what they’re owed in exchange for an agreed upon settlement, they document the forgiven portion as a loss and claim it as a tax deduction. This means they must report it to the IRS and the major credit bureaus. As a result, you could be expected to pay taxes on the forgiven amount and your credit record will reflect the settlement.

How It Works

If it is determined debt relief is indeed the best solution for your situation, you’ll be advised to deposit the money you’ve been sending to your creditors into an FDIC-insured escrow account held by an independent third party. Those deposits will be used to satisfy the terms of agreements reached on your behalf with your creditors.

Creditors will sometimes agree to accept partial settlements because they are better than what they’ll get if you’re forced into bankruptcy. Those payments come from the escrow account, which means your debts can only be settled once it is sufficiently funded. How long this takes depends upon the amount of your outstanding obligations and your ability to accrue cash to build up the account.

There Are No Guarantees

While reputable debt settlement companies do have good relationships with most creditors, reaching settlement agreements are not foregone conclusions. This is why nobody can guarantee you they can eradicate your debt. It does work in the vast majority of cases, but there is always a chance it won’t. Understanding this up front is paramount, as it can help prevent disappointments and misunderstandings.

Debt relief is one of a number of viable methods for clearing financial obligations. However, accepting debt relief for what it is will save you a lot of mental anguish as you strive to work your way back to solvency.

About the Author