Cancel credit card debt. It sound like a great way to get rid of your debt, does not it? Just hire a debt settlement company to get it canceled for you, and you'll never need to pay it off.
Well, as good as it sounds, there are a couple of things you need to know before going down that road.
1. Tax Implications
If you manage to get your credit card debt canceled, you need to keep in mind that whatever balance was taken away you will become a taxable "income" for you that year.
Because the credit card company essentially "gave" you that amount, the government wants to take their share.
How much you'll owe in taxes will depend on the amount and your tax rate, but you're going to be on the hook for it come tax season. You'll need to make sure that you have the money to cover the tax bill when the time comes.
And the IRS is not going to be as willing to cancel your debt to them as the credit card company might have been, so do not think you'll be able to get that debt settled as easily.
2. Legal Implications
When you're working with a settlement company, you do not have the same protections as you do when you declare bankruptcy.
So if you are not making at least the minimum payments to your credit card company, they can (and likely will) sue you if you fall behind.
This is not to say that you should bankrupt over debt settlement, but it's something that you absolutely need to keep in mind when laying out your plan for getting out of debt.
The key is to remember that nothing comes free. If you – or a company working on your behalf – manages to cancel credit card debt that you owe, there's going to be a few catches that you need to deal with.