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October 18, 2009
Does it Worth it to Get Debt Help
If you have gotten yourself into a difficult debt situation, a debt situation which is becoming increasingly difficult for you to navigate, then the possibility of having your creditor forgive part of your debt can turn out to be a very appealing one indeed. And as it turns out, debt forgiveness in the real life is something that is actually happening, with many debtors increasingly offering it to those of their debtors who owe them what can be termed as considerable amounts of money.
The basic concept of debt forgiveness is really easy to understand, and it something that we sometimes actually do in our ordinary dealings with people who happen to owe us money. The way it works is that the creditor makes it clear to you (as the debtor) that there is the possibility of their ‘forgiving’ you a considerable portion of what you owe them, provided that you pay them a pre-agreed amount in lump-sum. Behind all this is of course a well thought out business strategy, because the debtor knows that by getting you to pay whatever percentage of the debt in lump-sum, they get to save on what they would have otherwise had to pay in trying to follow up on the debt, not to say anything of the fact that by getting you to pay in lump-sum, they at least get their money back, something which would not have been guaranteed were they to insist on getting full payment for the debt. Half a loaf is better than nothing, or so the ancients said. So if you owe something like say $5,000, your creditor might decide to ‘forgive’ you the rest of the debt, if you can pay them $4000 in lump-sum.
To get insights as to whether debt forgiveness is worthwhile to the person whose debts are forgiven, we have to examine the long term effects of debt forgiveness.
In the long term, debt forgiveness could have a number of negative effects. Starting with taxation, you have to keep it mind as you go about getting into a debt forgiveness agreement that the amount of money that you will be so ‘forgiven’ will be treated by the tax authorities as an income, and taxed as such. Indeed, when the amount is added to your income from other sources, it could push you to a higher income tax bracket, and cause you to be taxed more by a bigger margin than the forgiven debt itself.
And secondly, while the creditors might ‘forgive’ the monetary debt, chances are that they would have to report the delinquency that made the forgiveness necessary, a fact that ends up lowering one’s credit score to an extent that they have to pay more (in interest) on their future borrowings than they received as a debt reprieve.
In the final analysis then, debt forgiveness has to be looked at objectively, and if one opts to enjoy the short term benefits it offers, at least do so keeping its long term effects in mind, so that they don’t come to you as a surprise.
The author like writing about debt management and how it can help a debt to reduce their debt. His site is at http://www.lesserdebt.com and there are articles about debt help for people that needs help with their debt.
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