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Debt Consolidation Versus Debt Settlement

Getting Out of Debt with a Debt Settlement Negotiation

Debt Settlement Outlet is focused on getting you out of debt quickly and cost-effectively

Debt settlement, also known as debt negotiation and debt arbitration, is the process of contacting the creditors and offering a settlement of less than what is owed on your revolving credit card accounts and other unsecured debt. With debt settlement, if you hire a professional, it typically takes at least $7,500 of unsecured debt to qualify; similar to CCC It usually takes 2 to 3 years to pay your debt under a debt settlement program. Similar to CCC, debt settlement has a negative effect on your credit. The other thing is that the forgiven debt is taxable. You'll receive a 1099 from the creditor at the end of the year for discharge of indebtedness income (DOI)--the amount of the forgiven debt.

The only way, other than being in bankruptcy proceedings, that you may not have to pay the DOI on your debt settlement is if you contest the liability. The example gives relates to a MasterCard debt:

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MasterCard contends you owe $1,000 but you didn't buy those Ferragamo shoes. The debate rages on for weeks. Finally, to put an end to the quibbling, you offer to pay $200 and MasterCard says OK. That $800 difference is a settlement of contested liability, and you're not liable for taxes on it. This doesn't happen very often. So, chances are, you'll be stuck with paying the tax on the forgiven debt. If the amount of forgiven debt doesn't put you in a higher tax bracket, it could still be worth your while.

The Recommended Choice

Debt settlement is the best way to get on the road to financial recovery. Why? Debt settlement helps people to settle debt and rebuild credit faster. How? By getting the actual balances of your debts lowered, so your debts are eliminated much quicker. Since your credit is going to be damaged anyway whether you choose debt counseling or debt settlement, why not go the quick route and do debt settlement?