What are Debt Relief Companies and what do they do?
Otherwise known as Debt Settlement companies, both are basically the same thing offering the same services to their customers. They attempt to negotiate and settle your debts for you.
There are many reasons why you should not use a debt settlement company until you've exhausted all other options on your own. You should try to negotiate and settle credit card debt on your own first.
Lots of debt settlement companies claim they have debt relief programs that can solve your credit card debt problem. There are many that claim they can arrange credit card debt negotiation and your debt settlement will only be a fraction of the debt you owe.
While these companies may have debt relief programs that can help with debt problems, they cannot guarantee you anything. There is nothing that requires a credit card company to accept a partial payment of a debt. Also, it could be months or even years before the debt settlement company is able to negotiate to settle your debts.
Before engaging a debt settlement company's services, make sure you do your research.
They may charge you something called a "debt settlement fee". The "fee" account is administered by a third party who may also charge you a fee. This third party will be the one that pays your creditors and the debt settlement company if settlements happen.
Tips for Working with a Debt Relief Company:
The debt relief company is required to give you the following information before you enroll in any debt relief program:
Debt Settlement and the IRS
The money you save in a debt settlement, can be taxed as income.
The company in which you arranged the debt settlement, can report the debt settlement to the IRS. The IRS may consider it as taxable income unless they find you are unable to meet your debts.
A tax professional can help you determine if your financial situation would warrant the IRS to consider your debt settlement as taxable income.
Watch Out for Scams
Don't work with a debt relief company if they do any of the following:
There are no guarantees. A Debt Relief Company cannot guarantee you anything and they are scam artists if they do.