Lump Sum Versus Payments

If you decide that you would like to get out of debt, one of the best ways to do so is by getting out of credit card debt through a settlement. There are two major differences between paying a lump sum versus payments. First, with a settlement, you will have to pay the company who settled your debt. Second, you can make payments towards your debts over a longer period of time – many years, even decades. However, there are pros and cons to both.

One of the most important differences between payments and a lump sum versus settlements is the length of time for getting the cash. With a lump sum, usually the cash is received quickly – within a few weeks to a few months. This is very good if you’re uncertain about what you need the cash for, or whether you’d like to invest it quickly. If you need the money for a long time, though, settlements are a better way to go.

Another difference between paying a lump sum versus payments is that with a settlement, you’ll usually pay the lump sum in full at the settlement conference. You then have to pay taxes on the amount of the settlement over the years. With payments, you’ll only pay the settlement, and you won’t have to worry about taxes. The amount of the payment is often determined by your income. If you have a lot of income, you’ll get a larger lump sum.

However, one of the biggest tax consequences of settlements is that you will typically be required to pay taxes on the entire amount of the settlement over the life of the loan. This can be a real hassle – especially if the company you work for is notorious for not paying its bills on time. It can also be an aggravation, because you could end up owing more money than you actually have. The IRS, which is responsible for paying off debt, will also charge you a fee for paying off a lump sum versus payments. This fee is assessed on a monthly basis but can be as high as 10% of the total amount of the settlement.

So, lump sum payments aren’t always the best way better than installments. They may be the fastest way to get out of debt, but they come with a lot of added fees. Plus, you run the risk of having your credit ruined. A large debt collector can report your payment missed or late to the credit agencies. Your credit rating will suffer, and you will be unable to get a loan for a car, a house, or anything else.

Another thing to think about is that you can choose to pay your own taxes, instead of having the IRS take care of it. This is a much better alternative. If you owe back taxes and want to do it yourself, you must hire a tax attorney, or an enrolled agent. These people are highly educated and have years of experience dealing with the IRS. Plus, they will be able to negotiate down your tax debt to a more manageable amount.