Troubling Paying Off Your Loans? Consider Debt Settlement

Debt Settlement written on paper with charts and graphsOne common theme in my articles is the ever increasing debt load facing Americans. Times are still tough, even though it’s been years since the Great Recession. People are still relying on debt to get them through these tough times. When things really start to get out of hand, it might seem that all hope is lost. When debt piles up and becomes impossible to pay off, some people consider bankruptcy. But before taking that option, consider debt settlement.

First, you should know that debt settlement should be avoided if at all possible. Selling non-essentials property and goods, lowering your monthly bills and other strategies should typically be used first to pay down your debt. But if that doesn’t work, you can attempt to negotiate with your creditor to accept a lower payment instead. It is, in fact, possible to negotiate your credit bill. Even large financial institutions use debt settlement strategies when they begin running into trouble.

Understand then Act

First, understand what debt settlement is and how you can use it. Under normal circumstances, usually, only unsecured debt, in the form of things like credit card debt and medical costs are available for negotiation. One exception to this is student loan debt. Although student loans are generally unsecured, they are normally not available for negotiation. Mortgages and car loans are usually secured debts, meaning your creditor will most likely be unwilling to negotiate with you. But it wouldn’t hurt to try anyway. Once you sort out your debts, try to find the debt with the highest interest rate. This debt will cost you more in the long-run and should be squared away first. It will likely be credit card debt. Once you’ve picked the debt you would like to negotiate, find that name of the institution that issued you that debt. You’ll need to find pertinent information such as the company’s telephone number and if your lender has a local branch in your area. However, before calling your lender, you should know of the three main approaches to debt negotiation. First, you can opt to negotiate yourself. Second, you can hire a debt settlement company to negotiate on your behalf. Finally, you can also look for a non-profit credit counselor.

Debt Settlement Service

You have the option of choosing a debt settlement company to negotiate on your behalf with your creditors. But this option is a bit riskier than the others. These firms are for-profit, meaning they will charge you a fee. Often times, these fees are expensive. Sometimes debt settlement companies will charge you a percentage of the debt they’ve negotiated, which is counterintuitive considering you’re trying to get rid of this debt in the first place. Moreover, understand that your creditors do not have to negotiate your debt at all. They are under no legal obligation to forgive or reduce your debt. If your debt negotiator fails to reduce your debt load, you’ll likely be stuck with a hefty fee nonetheless. If you decide to take the risk and go with a debt settlement company anyway, there are a few things you should watch out for.

First, they will likely recommend that you stop paying your monthly dues as a negotiating tactic. Whether or not this strategy actually works is debatable. But what is not debatable is the negative impact this will have on your credit score. Second, if the company charges you a fee before even negotiating any of your debt, you should be extremely skeptical. Be careful of companies that make grand claims.

Settling Debt Yourself

Arguably the best form of debt settlement is doing it yourself. There are no fees involved because you wouldn’t charge yourself money to negotiate your own debts. This method is also considered better because some lenders may be more willing to work with you. When a lending institution learns that you have hired a company to negotiate on your behalf, they may become more stubborn and aggressive. This is because some debt negotiators are cut-throat and engage is practices that lenders do not like, such as having you stop making payments as a negotiating tactic.

It also might be the case that your lender will be more willing to work with you on a personal level. If you’re considering debt settlement, it’s likely the case that you’re in serious financial trouble. If you explain your situation to your creditor, they may have sympathy for you and be more willing to negotiate. But you cannot rely on sympathy alone during your negotiation. Before making the call lay out all of your options and understand how much you will realistically be able to pay towards your debt. You will need to know the details of your finances, such as your income, assets and total debt load, before calling your lender. They may ask for proof of this information before agreeing to reduce your debt load.

If you plan to settle your debt on your own, don’t wait around. You need to be proactive. Gather all of your information, crunch some numbers, and find a negotiating starting point. You will have to either pay a lump sum less than the amount of your total balance, or your total balance will be reduced overall. Call the company that issued you the largest and highest interest rate debt and start there. Approach your creditor in a professional and polite manner. Remember to stay firm in your position while negotiating, but do not make unreasonable requests. Remain calm and patient throughout the process. Your company may delay the process for a while. Don’t give up so easily.

Credit Counseling

The final option available to you is talking to a non-profit credit counselor. Although there are not many, there are some free debt settlement and credit counseling groups available. These groups may be around your neighborhood or city at a local rec center. With a little internet searching, you may be able to find some free materials on debt settlement and resources. You can use these tips when negotiating on your own. However, it’s unlikely that these credit counselors will negotiate on your behalf for free.

Considerations

Before you take the path of debt settlement, consider a few things. You need to understand the impact this process will have should your creditor actually forgive some or all of your debt. If your creditor forgives any or all of your debt, it will report this to the relevant credit agencies. Lending institutions look down on debt settlement from a practical point of view. If your debts are settled for less than your total balance, your credit score will take a hit. Also, understand that any debt relieved greater than $600 dollars is liable for taxes. This one is important. The government considers any forgiven debt over $600 to be similar to income, and it will be taxed as such. If you owe $8000 and settle with your creditor for $3000, you will likely owe taxes on the difference of $5000. So be sure to check with your tax advisor.

Posted on January 3, 2018 by in Debt Management

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