However if you decide a debt settlement program is what you need to get out of debt, then you need to be fully aware of the IRS tax implications. For some odd reason the IRS tax code is written such that it assumes the savings you get when a debt settlement company successfully negotiates down the amount you owe, is taxable income. So yes, the difference between the money you originally owed and the amount you actually pay will be taxed.

It is important to understand this and more importantly, plan for it. A good debt settlement company should discuss this with you upfront so you can set aside the money as part of your monthly payment. That way you will not go from being free of credit card debt into a situation where you are in debt to the IRS (not something you want to do).

There is a chance that given the state of the economy, the Federal Government will alter this law which hurts people trying to fix their financial problems…we can only hope aa we wait and see.

These programs include creating a new financial budget for you that consolidates your credit card bills and helps reduce your totals payments through an interest rate and fee reduction.

Consumer credit card debt counselors already know the amount of the rate reduction they can offer you after they assess your financial situation. They do not have to negotiate it with your creditors one by one. They have a formula they use that has been predetermined by them in conjunction with all the credit card companies as they work closely together. In fact, they make their money in two ways:

1. From a set up and monthly management fee they will collect from you

2. From payments the credit card companies make to them for helping you manage your finances.

Why do the credit card companies pay them? Because they want to get paid back what you owe them and without debt management companies many consumers would end up with a debt settlement company that will reduce the balance owed. The result, they would take a loss vs. just less interest income.

So consumer credit debt counseling companies work in tandem with the credit card companies and are actually paid by them to help you get in front of your debt problem before it gets out of your control. They make more money that way.

• Do you have a home that’s worth more than you owe?
• How much unsecured debt (most common type is credit card debt) do you have?
• How much income do you have?
• How important is your credit score to you?
• How bad is your situation?
• Are you currently behind on any payments?
• Could you possibly give up your credit cards?
• Have you ever filed bankruptcy before?

So as you can see there are many factors you want to take into consideration. Your first job is to determine the best consumer debt relief solution for you. The basic most common solutions are:

1. Debt settlement to reduce your unsecured debt balance
2. Debt management to consolidate your debt and lower your interest rates (if you do not have a home with equity)
3. Refinancing your home to consolidate your debt (if you have equity in it) to pay off your credit cards
4. Bankruptcy

Each solution should be considered based on your individual circumstances. I suggest you continue to do research on this website to see which option may be suitable for you and then contact a few companies to ask questions and get quotes. Use my interactive tool and watch this video on debt help to help get you started in determining what debt solution is best for you.