Who Should AVoid Debt Reduction Programs?
A debt reduction program looks like a tempting option for a person to use in their quest to climb out of a financial hole. After all, the program promises a pretty impressive looking service at its core: Namely, the negotiation with your creditors to lower your overall debt by 40 to 60 percent, and you pay the company the remaining debt instead of the creditors. It almost looks too good to be true despite the fact that it does indeed exist.
However, while it can be a powerful and effective tool in the quest for eliminating debt, it is not for everyone. For one thing, using a debt reduction service can have an adverse effect on a person’s credit score, since it can still take up to four months for a company to start taking care of your debt. If you already are faced with a poor credit score, or have clawed your credit score back to respectability, a debt reduction program may not be the best option to consider. Furthermore, the loan reduction is viewed by the Internal Revenue Service as a gift, and therefore must be reported on your 1040 as such. If you are already struggling with taxes, or feel that you haven’t paid enough taxes or accrued enough tax deductions to offset the gift designation, you may want to shy away from using the service.
However, if you find that you pass the proverbial sniff test in regards to these caveats, a debt reduction program may be the solution that you are seeking. As long as you cognizant of the risks involved, and feel that they won’t affect you adversely, it could very well be a mighty tool to utilize. You may even find it too good to be true.
However, while it can be a powerful and effective tool in the quest for eliminating debt, it is not for everyone. For one thing, using a debt reduction service can have an adverse effect on a person’s credit score, since it can still take up to four months for a company to start taking care of your debt. If you already are faced with a poor credit score, or have clawed your credit score back to respectability, a debt reduction program may not be the best option to consider. Furthermore, the loan reduction is viewed by the Internal Revenue Service as a gift, and therefore must be reported on your 1040 as such. If you are already struggling with taxes, or feel that you haven’t paid enough taxes or accrued enough tax deductions to offset the gift designation, you may want to shy away from using the service.
However, if you find that you pass the proverbial sniff test in regards to these caveats, a debt reduction program may be the solution that you are seeking. As long as you cognizant of the risks involved, and feel that they won’t affect you adversely, it could very well be a mighty tool to utilize. You may even find it too good to be true.