Michigan consumers with mounting debt may not know how to resolve the situation. Those with overwhelming credit card debt may want to consider negotiating debt settlement with their creditors. The services of companies offering to arrange settlements are available, but the fees for the service is typically substantial, and positive results are not guaranteed.
Before starting the process of negotiating with creditors to settle for partial payments, it may be best to list all debts with respective outstanding balances and how far in arrears each debt is. A good way to prioritize them is to list the ones with the highest interest rates at the top; however, paying off the low amounts first may provide some sense of accomplishment. The next step would be to calculate the maximum amount that is affordable, while not losing sight of one’s day-to-day living costs. To start negotiations, individuals may want to advise the creditor of his or her inability to submit regular payments, in an attempt to get negotiations going.
Many companies are known to be open to offers of 40 to 60 percent in settlement, but there is no harm in starting with offers of 25 percent. Once an agreement is reached, the debtor should request a written copy of it and not submit any payments until such a copy of the agreement is received. It is important to honor the payments agreed upon and not fall behind. There are tax implications for wiping out in excess of $600 per creditor, and individuals may want to obtain the appropriate advisors to ensure they do not end up with a large tax bill.
Michigan residents may wish to obtain the relevant tax information before starting the negotiation process. If the tax liability is substantial, it may be wise to consider the protection of personal bankruptcy. Chapter 7 bankruptcy may discharge all unsecured debts, including credit card debt, while protecting the individual against creditor harassment. Chapter 13 bankruptcy is a process whereby a debtor continues paying debts according to a court-approved reconstructed payment plan, affording the individual a settlement period of three to five years. Personal bankruptcy is a way for individuals to walk away from their debts and start building a stable financial future.
Source: MSN Money, "5 steps to negotiating a debt settlement", A J Smith, June 6, 2014