How to eliminate old debt – debt settlement (DIY)
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Now we’re going to discuss another secret that will help you with improving your credit. A recent customer named Linda was stuck in a cycle of debt That was killing her credit report. She fell behind for five months on her credit card payments, and even though she started paying again. She was still consistently showing as 150 days past due. Every payment Linda made dragged out the past-due balance, and she couldn’t afford to get ahead. Now it’s urgent for Linda to Eliminate old debt.
Linda was a victim of a perpetual cycle of debt, and extreme measures were needed to clear up her credit report. So she could live a normal life again. And no, I’m not talking about bankruptcy, which is the last resort.
How long negative information impacts your credit report
Information that negatively impacts your credit report only stays on your credit report for seven years and 180 days after the incident. This doesn’t include bankruptcy, which remains for 10 years.
The “incident” is considered a late payment or charge-off. It is required by the Federal Deposit Insurance Corporation that after 120 days of delinquency, installment loans like a mortgage or car loan should be charged off. Credit cards and other revolving debt must be charged off after 180 days of delinquency.
The cheapest way to Negotiate a debt settlement – Your Secret Weapons
Once your account is charged off, it’s sold to a debt collector for less than 20 percent of the total balance. This gives you leverage to negotiate a settlement as low as 30 percent of the total debt. This is a trick many credit counseling companies use to consolidate and lower your bill payments.
In Linda’s case, it was necessary to stop making payments that dragged the debt out longer. Instead, we negotiated a settlement. Keep in mind, that settled accounts don’t help your credit score as much as paid-in-full accounts. But they don’t negatively impact it as much as unpaid debts.
How to settle the debt when settlement isn’t accepted by the creditor
If the creditor doesn’t accept a settlement then try to eliminate old debt with the debt collector. Even though they purchase the debt for pennies on the dollar, debt collectors still attempt to collect the full balance.
Debt collectors also continue charging interest and late fees on your unpaid debt. This increases the amount of debt they can eventually sue you for. In most states, third-party collectors can continue adding interest for three to seven years, although sometimes it’s indefinite. This is why it’s important to settle all your debts as fast as possible.
Check your state laws to determine the statute of limitations in your specific circumstances. For example, in California, collectors have four years to legally collect.
Things to remember when negotiating a debt settlement or cancellation to Eliminate old debt
When you negotiate a debt settlement or cancellation to eliminate old debt, you should be prepared to receive a 1099-C tax form for the cancellation of the debt. The IRS considers canceled debt to be taxable income. You must report when you file your taxes. If you’re being targeted by collectors, don’t worry. There are laws in place that dictate how collectors can pursue you for this debt.
The Bottom Line
Eliminating old debt can be the least expensive option for you to get out of your debt. It depends on many factors like how much you owe, how much time it takes, and how stressful you might feel compared with the alternatives. You should think about the pros and cons of debt settlement before you start it and also make sure that you are dealing with a reputable company if you do.