Besides credit score and taxes, there are 3 other smaller but still important considerations to make before beginning a debt settlement program. Those include:
- Legal considerations
- Debt balance inflation
- Creative settlement funding
Legal considerations – A very important point is that you should aim for your debt settlement program to be between 12 and 18 months. If the program stretches out over two years, you run an increase risk of legal action from your creditors. If this does happen to you, it is possible to still settle while facing legal action and this will be covered in more depth later.
Inflation of balances - Balances of your debts will continue to balloon during the collection and settlement process. In the 6 months prior to charge off, a $10,000 debt will inflate by about $1700. See sample chart.
Funding settlements – Settlements will be funded through a combination of monthly savings and supplemental funds. These supplemental funds could come from anywhere but the most common sources are friends or family, home equity, borrowing against 401k or IRA, selling old vehicles or other household items.
