Credit Score

• When you do a debt settlement it lowers your creditor score anywhere from 45 to 125 points. This information remains on your credit report for seven years. It will be difficult to get credit in the future with favorable terms.
  
  

Taxable Income

• You may have to pay taxes on debt that is forgiven. If you have a debt of $8,000 and you settle for $5,000 you may have to report the $3,000 as taxable income when you file your taxes. This applies to forgiven debt of $600 or more.
  
  

Considerations

• If you don't have proper documentation regarding your settled debt some collection agencies will still try to collect the balance even though you settled. Collection agencies purchase debt from other agencies and they may try to get you to pay.
  
  

Bankruptcy/Insolvency

• When you settle your debts the only way to avoid reporting it as taxable income is if you filed bankruptcy or if you were insolvent when you settled your debt. The IRS has determined that insolvency is a situation where your liabilities exceed your assets.
  
  

Settlement Procedures

• If you want to settle your debt because you want to get out of paying you must first ruin your credit. A creditor will only settle with you once your account is 90 days past due.
  
  

Debt Settlement Company

• If you use a debt settlement company you may have to pay an excessive amount of fees.