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For many people, the decision to eliminate credit card debt through debt settlement is a difficult one to make. This is due to the fact that most consumers aren't well-educated in the area of debt settlement.

Over the past several years I've been asked numerous questions regarding the process of debt settlement, and have summarized those inquiries below:

What type of debt can be negotiated through debt settlement?
The majority of the debt you're attempting to negotiate with your creditors would be unsecured credit card debt, as it allows a greater amount of leverage when negotiating, and the end result will likely be a satisfactory settlement to both the debtor (consumer) and creditor. Department store charge cards, financing contracts, medical bills and miscellaneous debts are also negotiable, even though it's been my experience that the results are not quite as predictable as standard credit cards. Unfortunately, government sponsored student loans cannot be negotiated or discharged.

How are my creditors paid when a settlement is reached?
Once a settlement has been negotiated with a creditor, obviously the settlement amount is then forwarded to that creditor. It's important to understand, prior to signing up for a debt settlement program, that the settlement funds must be available once a settlement agreement has been reached with a creditor. If it's unlikely that you can realistically accumulate these funds, either from a savings account, retirement account, home equity loan or a friend or relative, unfortunately you simply won't qualify for this type of program. Fortunately, most creditors will accept settlement payments via 4-6 monthly installments. This has helped many individuals successfully follow through with their commitment to settle their accounts.

Will my credit score be affected?
Debt settlement is reported to the credit bureaus as "account settled for less than the full balance" or "account settled". Keep in mind, however, that credit card accounts that have been settled appear positively on credit reports when compared to bad debt, or a bankruptcy. Your credit rating may decline initially, but only until the debts can be removed from your credit report. It's important to remember, however, that your credit rating will improve due to the fact that one of the most important factors used when determining a credit score is the amount of debt you actually owe. Individuals who have successfully completed a debt settlement program generally experience an overall improvement in their credit score within twelve months. If you've found it difficult to keep up with the minimum monthly payments to your creditors, there's a very good chance that the debt has already been reported as delinquent, which has most certainly affected your credit rating already. Generally this also means that you have a high amount of debt appearing, further contributing to a poor credit score. Remember a lender looks at many factors to determine credit worthiness, your credit score is just one of them. If you eliminate your outstanding debt, your credit worthiness improves dramatically. To learn more about debt settlement and your credit score, click here.

Will I owe income taxes on the forgiven debt?
Banks are required to report canceled debts over $600 to the IRS and consumers are required to report that canceled debt as income on their tax return. The IRS does permit you to write off any "income" from canceled debts up to the amount by which you were "insolvent" at the time. Unless you have a positive net worth (highly unlikely if you are deep in debt) then you usually won't have to pay taxes on the forgiven amounts. For more information regarding the possible tax consequences, it's highly recommended that you speak with your tax preparer and/or click here

Can I continue to use my credit cards?
No, you will not be able to continue using your credit cards. Not necessarily a bad thing, since high interest credit cards have gotten many people into a financial situation that they just haven't been able to pull out of. When you enter a debt settlement program, most firms will require that you discontinue any further use of your cards. Some debt settlement companies, however, do suggest that you keep one card available for emergencies, generally with quite a low credit limit to avoid getting yourself any further in debt.

How long does the debt settlement process take?
The length of time to complete your program will depend on the current status of your accounts, the amount of debt you owe and the source from which you'll be relying on for settlement funds. Some individuals can complete the process of debt settlement within 30 days, while others can take as long as three years. Your individual situation is what determines how long the entire process will take.

Is debt settlement similar to consumer credit counseling?
No. Credit counseling services usually work for your creditors, as they are (at least partially) funded by your creditors, earning a percentage of what you pay to your creditors. In most cases, you will be expected to pay 100% of your debt, sometimes with reduced interest, by making smaller payments over a longer time period. Because credit counseling makes its money by earning a percentage of the amount you pay your creditors, their incentive is to get you to pay 100% of your debt, rather than to sit down and negotiate a reduced settlement amount with your creditors. Unlike consumer credit counseling, debt settlement allows you to be free from monthly payments after you've paid the entire negotiated settlement amount via a lump sum payment or a few monthly installments.

What amount of money will I need to enter a debt settlement program?
While many debt settlement firms have seen excellent results through debt settlement using tested and proven procedures, just like a good surgeon can't guarantee the outcome of an operation, most can't guarantee what each settlement with your various creditors will be. Reputable firms have consistently produced some very positive success stories for their clients, and while past performance is a good indicator of the results you may expect, it is certainly no guarantee of future results.

Can I negotiate with my creditors without hiring a debt settlement firm?
Negotiating your debt by yourself is possible, but it's not likely that the end result will be a positive one. Banks rarely take debtors seriously and are well prepared for the amateur do-it-yourself negotiator; as a matter of fact, most representatives at your credit card companies have prearranged scripts waiting for your phone calls. You'll hear a lot of "we do not settle debts under any circumstance" and "I can transfer you to a department that may be able to help you qualify for our hardship program." Most consumers simply give up at this point because they feel that debt settlement isn't possible and there's no end in sight. Not to worry ' there are many reputable firms who will be more than happy to assist you.

Hopefully your questions regarding debt settlement have been answered. Whatever path you should choose to become free from debt, I wish you the very best.