Debt counseling, consolidation, or settlement: Which is beneficial

Debt counseling, consolidation, or settlement: Which is beneficial?

The two most feasible options for people struggling to pay off debts are debt counseling and debt consolidation. But most people feel overwhelmed when they need to choose between these two options. It is worth mentioning that each method has its advantages and disadvantages. So before you select a suitable debt relief program, it is advisable to analyze your financial situation as well as check the two options properly. Therefore, let us discuss these two options in detail to know which one will be favorable for your financial situation.

 

Credit counseling/debt counseling

What is credit counseling?

Credit counseling is a process where a credit counselor educates the debtor about various debt relief options, money management techniques, and budgeting. This process also provides guidance to debtors to eliminate debt.

The credit counseling agency assists the indebted people to get out of debt. The firm guides the debtor to manage the financial situation effectively.

 

What is the function of credit counseling?

A certified credit counselor guides the debt-stricken consumers to get out of debt.

When you opt for credit counseling, the credit counselor will formulate a budget plan after reviewing your financial situation so that you can manage your finances. He will design a repayment plan to make the owed amount affordable to pay off.

 

Effect of credit counseling on credit score

Your credit counseling session will not bring down your credit score as the effect of this program will be negligible on your credit score. The credit counselors prevent consumers from applying for new credit cards and incur fresh debt. They also prevent consumers from using a credit card in the wrong way, which can hurt the FICO score in the future.

 

Debt consolidation

What is debt consolidation?

Debt consolidation is a process of merging your multiple debts with a consolidation loan at a favorable interest rate. You can prolong your repayment plan, which will help to lower your monthly payment.

 

How can you consolidate your debts?

You can take out an unsecured consolidation loan from a bank to combine your debts. If your credit score is low, then you might not be able to get the loan on the affordable interest rate.

 

Try to opt for a secured debt consolidation loan if you are looking for low-interest loans. You can take out a loan against a security deposit on favorable terms. But, keep in mind that, if you default on your payment, then you might lose possession over your assets.

 

You can even hire services of a debt consolidation company if you are unable to manage your debts. This company can help you to get a consolidation loan at an affordable interest rate. You need to find a reputable debt consolidation company with Better Business Bureau accreditation.

 

There is yet another way to consolidate your debts, and that is by enrolling in a debt consolidation program. Here the debt counselor associated with the company will negotiate with the creditors to lower the interest rate on the principal balance. He might instruct you to skip payments so that the creditors agree to lower the repayment plan. When you skip payments, your credit score might drop initially. But once you start making payments, it will eventually increase.

 

Debt settlement

What is debt settlement and what is its effect?

If you can’t manage your multiple debts due to lack of income and the debt collectors are giving you harassing calls throughout the day, you can enroll yourself in a debt settlement plan and repay the reduced balance with ease. While there are professional companies that you can resort to, you can also take certain steps on your own. By settling your debts yourself, you can save your dollars on the unnecessary fees charged by the debt settlement attorney.

 

3 Steps to settle your debts

  • Know your lenders: You can settle your payday loan debts through settlement. If you have a dozen payday loans or a couple of them, calculate the total amount before considering further steps. Calculate the principal amount and the interest rates on each account. This will help you to understand how much you need to repay your creditors.

 

  • Know the licensing laws in the state: You should check the licensing laws so that you can understand whether you owe them both the interest rate and the outstanding balance or just the principal amount. If the lenders are legal in your state, then repay the entire amount. If the lenders are not legal, then you just need to pay back the principal amount and not the fees.

 

  • Negotiate with your lenders: To settle your debts, you need to negotiate with your creditors to reduce the total debt amount. However, negotiation can be difficult for you since you have to convince your creditors about your financial difficulties. Thus, you can enroll in a debt settlement program, when the negotiator negotiates on your behalf and successfully reduce the total debt amount.

 

Therefore, analyze your financial situation before selecting a debt relief plan as it will help you attain financial liberation. Make sure you exercise financial discipline when you take out a debt consolidation loan otherwise you might get further into debt. If you are looking for a fast debt relief solution, then credit counseling will not be a good option for you.

Debt consolidation: Pros and cons that you should be aware of

If you are struggling to repay your credit card bills, medical bills, or monthly bills, then you should apply the right debt relief strategy. Ignoring debt can create more financial trouble in the future.
You can seek many debt solutions to get out of unsecured debts. But, when you are struggling with multiple debts or bills, you can consider debt consolidation process.
In this process, you can either combine all your outstanding balance under a single card or obtain a loan at a lower rate of interest to pay off all your unsecured debts. You can also enroll with a debt consolidation company to consolidate your debt. Once you enroll in the program, the debt counselor will negotiate with your creditors to lower the interest rate on your debts. They will club all your outstanding debt obligations into a single low monthly payment plan. You just need to make one single monthly payment for a certain time to become debt free.

What are the benefits of considering debt consolidation process?

Some advantages of debt consolidation process are as follows:

You need to pay a single monthly payment

If you opt for debt consolidation process, you would not have to bother about making multiple monthly payments to your creditors. Just by making a single payment every month, you can pay off all your debts after a certain time. You do not have to pay any extra fees. Only you will have to pay the consolidation services fees if you enroll with a debt relief company to opt for the consolidation service.

It helps to lower the interest rates on debts

You can reduce the interest rate on your debts through debt consolidation. By putting all debts under one card, you will be able to get a lower rate of interest.
In case you are taking out a consolidation loan to pay off your credit card debts, then you will surely get the loan at a lower interest rate.
If you are getting help from a debt consolidation company, the company will negotiate lower rates of interest with your creditors. Thus, you need to pay a much smaller amount than what you were supposed to pay.

You need to pay to a single creditor

When you consolidate your debts, you just need to pay only a single creditor.
If you take out a debt consolidation loan, you will have to pay only the bank or the lender who has provided you that loan. Thus, you do not have to take the trouble of paying multiple creditors.

If you get help from a debt consolidation company, then they will assess your financial situation and decide on a single monthly payment. You need to pay this amount to the company and they further distribute this money among your creditors. Thus, you do not have to pay multiple creditors.

You will get a lower monthly payment

If you consider a debt consolidation program, the debt counselor will negotiate with your creditors to lower down the rate of interest on the debts that you owe. This, in turn, lowers down your single monthly payment amount. It is easy for you to pay a lower single monthly payment plan.

You will get back your peace of mind

When you have too many credit card bills to pay, you will get several credit card bills in the mail. This can turn into a very stressful experience for you. When you consolidate your credit card debts, you will get only a single credit card statement. Thus, you can feel relaxed, which is very important for you to plan your finances better and live a good life.

You can avoid bankruptcy

Ignoring debt can create more trouble. You will start getting debt collection calls. If you don’t respond, then the creditors or debt collectors can sue you for the due payments. You may have to file bankruptcy to pay off the debt collectors. In bankruptcy, you may lose your assets. So, considering debt consolidation can help you to avoid bankruptcy.

Raises your credit score

Debt consolidation program does not hurt your credit score. Since you are paying off all the debts, it will not hurt your credit score. Rather, if you make regular monthly payments, your credit score gets a boost.

Disadvantages of debt consolidation process

Nothing is flawless, debt consolidation has some flaws as well.

Here you go:

  • In debt consolidation process, you can’t reduce the amount of debt. You can reduce the interest rate on your debts, but you have to pay the total debt.
  • The debt consolidation process can be expensive in the long run. If you take out a consolidation loan to pay off your debts, then you have to make monthly payments on the new loan (Consolidation loan). It takes a longer time to pay off the new loan. So, you end up paying more on the interest rate.
  • If your credit score is not good, then you won’t get better rates on your new loan (Consolidation loan). You will be charged a high advance fee. If your credit score is not good, then you can get help from a debt consolidation company to consolidate your debt.

Lastly, you shouldn’t miss the debt payments for your new consolidation loan. So, make sure you follow a budget to make monthly debt payments on time.
If you decide to enroll in a debt consolidation program, then make sure the company is good. Check the rating with BBB before signing the agreement. A good debt consolidation company provides free debt counseling. So, you can be benefited by the debt counseling session. The counselor will help you to learn better money management and budgeting skills.

Is it possible to settle debt without hurting your credit score?

Is it possible to settle debt without hurting your credit score?

The simple answer would be a big “NO”

But there are certain aspects you may need to know first.

Most of your credit card debts and loans are directly reported to the 3 major credit bureaus every month. Each of your credit account statuses are regularly added on to your credit report showing whether you are late with your payments or whether the account is paid or closed.

When you settle your debts, the creditor would update your credit report with the status of “Settled” or “Paid as Settled.” The former status is naturally better than the later one, but any other payment status on the accounts except “Paid as agreed” or “Paid in full” may harm your credit score.

In debt settlement, you aren’t paying your dues full as you have agreed to the creditor. So, debt settlement will definitely have a negative impact on your credit score. Your credit score is dependent on a few factors, so the exact impact on your score may vary considering the other information on your credit report. However, it’s quite sure that debt settlement may have a significant effect on your credit score.

But is there any way you may settle your debts without hurting your credit score? Of Course… there are some options which may indirectly help you to settle your debts and get out of the situation. Let’s have a look at them closely.

How to settle the debt without damaging credit

One thing is sure, you need to create a fund or a reserve to pay off your debt. When you have saved enough money to pay off your debts, you may try to negotiate with the creditor for lowering the debt amount.

1. Choose which debt to handle first

If you have multiple credit cards, payday loans, medical bills, and other unsecured debts, then you should focus on settling one debt at a time. Use one of the following methods:

  • Pay off the debt with the highest interest rate. This debt may cost you the most in interest, so settling it off first may save you money. You should make the minimum payments on all other credit cards and regular installments on loans. Once you pay that debt off, you may target the next account with the highest interest rate.
  • Pay off the account with the smallest debt balance. This may cost you more as you are ignoring the higher interest debts. However, this strategy might give you a positive momentum as you’ll be paying off an account sooner than you think. As you pay off one account, your confidence may get a boost.

If you want, you may negotiate with the creditor at any point in time.

2. Creating a budget

To settle your debts, you may need to live within your means. Basically, you must free up as much money as you could for contributing toward your debts. Take a deep breath and create a budget:

  • Make a list of fixed expenses. Normally these things may cost the same every month: rent/monthly mortgage payments, the premium for health insurance, car payment, food expenses, etc.
  • Add new variable expenses. They may change each month. Variable expenses are basically luxuries like dining out expenses, gym memberships, Netflix charges, etc.
  • Take measures to reduce your variable expenses as soon as possible and contribute the money saved towards debt payments.

3. Find a part-time job

Apart from lowering your expenses, you should also increase your income. Find a part-time job or try freelance work online. Don’t miss out any opportunity to explore new side hustles that may increase your income and help you to settle your debt on your own.

The money from side hustle may add up funds quickly. For example, you might get a job for $30 an hour. If you work 30 hours a week, you can earn an extra $900 before taxes. Over a period of 1 year, you will have gathered about $43,200.

4. Sell your unused goods

You can earn money by selling unused things that you own. In fact, you might be able to sell things that got you into debt. Search your home for such things and locate anything that you can find useless. Sell it on eBay or in a yard sale. Engage all the money to pay off your unsecured debts.

5. Ask for a lower interest rate

Once you have gathered enough money to pay off your debts, you might want to negotiate your interest rate with your creditor. You can’t reduce the principal amount at all, it’s the interest which can be settled. Although you aren’t entitled to a lower rate, there’s no harm to ask.

Call your creditor, introduce yourself, and tell them how long you have been a customer. Ask the creditor if he can offer you a lower interest rate, so that you can repay your debts asap. You can also negotiate to settle the debts by paying less than what you owe. But you need to convince them to report your account as “Paid as agreed”.

6. Don’t close your credit cards after paying off

As you pay off your credit cards, you might think of closing them so that you will never be tempted to incur huge balances on them again.
However, closing too many credit cards within a little time gap can create a red flag on your credit card report.
A better option would be waiting for a few months before closing each card. For example,6 months or so. Closing several credit cards, especially the older cards, in a short period of time, can give creditors the indication that you are having a financial hardship and can’t afford to maintain multiple credit cards. Apart from that, closing old cards also remove a good credit history from your credit report.
Closing one card and waiting a few months before you close another is usually a better strategy to protect your credit score.

Conclusion

You must remember that the prime target of debt settlement is to wipe out some of your debts which you can’t afford to pay in full. That means you need to sacrifice your credit score for the time being, especially if you’re not going to apply for a big loan right now.
Once you’ve settled the balances, you must focus on rebuilding your credit score again. Since credit is depending on your borrowing, you’ll have to use credit cards responsibly for incurring more credit balances and take out loans to rebuild your credit. Paying your monthly payments is another important thing to remember. You’ll should become an ideal borrower by making on-time payments for loans and pay your credit card bills within every billing cycle. This way you may achieve a good credit score, and can avoid incurring more debts.

Living paycheck to paycheck - 8 Sure shot ways to break the cycle

Living paycheck to paycheck – 8 Sure shot ways to break the cycle

Are you living paycheck to paycheck? If yes, then you are already in a financial crisis. Living paycheck to paycheck reflects that you are not able to manage your monthly financial obligations.
However, don’t be scared. You just need to break the cycle of living paycheck to paycheck.
There are more than one ways to get rid of the distressed finances every month.

The person who is living paycheck to paycheck is either spendthrift or a low earner.
So, to break the cycle, you have to learn to live on less and increase your income simultaneously.
Here’s how you can do it

1. Start following a budget right now

To stop living paycheck to paycheck, you need to start following a budget as soon as possible. It will help you to keep a close watch on your monthly income and your expenses. Most people in the US hate to follow a budget as this puts a restraint on their spending ability. But most of them are not aware of the fact that budgeting is the secret to financial freedom.

2. Keep household budget in order

Once you create a budget system according to your financial ability, you can manage emergencies, save money for the future, and make some additional expenses. A budget also teaches how to overcome the bad financial phase as well. Once you start following a suitable budget, you’ll be able to know the amount you spend and the amount you save. Thus, you can save more after meeting your daily necessities.

3. Take advantage of free budgeting tools and apps to form a budget

Budgeting is not so scary as many people think. Many budgeting tools and apps are available online. If budgeting sounds dull, then install the free app on your smartphone and start using it. Soon you can see the positive result in your personal financial health.

4. Restrict the usage of credit cards

By restricting the usage of your multiple credit cards, you can easily restrict yourself from incurring further debt. The more you buy things with credit, the more you’ll dig yourself deeper into the credit card bill. Keep your card at home so that you don’t get the temptation of using it. Instead of credit, use cash so that you can stop shopping as soon as your cash is exhausted.
Also, pay the credit card bills in full and within time. Try not to incur credit card debt. Otherwise, you will not be able to save money on your paycheck.

5. Cut down extra costs

To save money, you need to cut down unnecessary expenses. To stop living paycheck to paycheck, you need to save at least 10% of what you make each month. To do so, you have to cut down unnecessary expenses.
For example:

Avoid spending money on fast fashion

Go to a small store rather than a large one to buy your clothes. Instead of following the latest trend, make your own fashion statement. Buy jeans and T-shirts of bold color and use them for casual wear. You can also buy a black evening gown as this color never goes out of fashion. Keep a close look at the offers and discounts at your nearest stores and grab the opportunity of buying clothes at a cheaper cost.

Cut down on entertainment expenses

Curtail your entertainment expenses like the cable bill, movies, and expensive magazines, and save a royal share of your hard earned money. Try to be a little creative and find entertainment in flying kites, playing soccer, and going for an evening walk. You can also spend time with your friends and family at home along with some delicious snacks.

Cut down extra food cost

Try to change your food habits and save some amount of food. It is advisable to carry lunch at work instead of having food from outside. A sandwich can cost you around $20. So, if you carry lunch from your house, you can save $20 a day, which means $600 a month. Shop your groceries from small stores rather than large ones and keep an eye on offers and discounts. Also, gather discounts coupons and carry them along while going for shopping.

Avoid going to expensive restaurants

Most of the people love to eat out in fancy restaurants. But, too much eating out can be unhealthy for your wallet. A lavish dinner/lunch at an expensive restaurant can cost you nearly $2,000 a year. Instead, you can enjoy the homemade meal to save money. If you can restrain yourself from eating out at an expensive restaurant, you can save thousands of dollars a year.

6. Ask for a raise or do a part-time job

If you’re working hard and performing well in your workplace, then this is the right time to ask for a raise. Approach your employer in a right way to get paid according to your capability. You can also consider a side hustle to boost your income. Go online to get ample of ideas.
You can also boost your income by doing a side hustle. It will help you to earn more.

7. “Saving money” should be the only goal

Save, save, and save. No matter what amount, but consistency is required. Try to start small. It will help you to balance other mandatory expenses. With time you will be able to save enough money.

8. Be positive

Following a budget and saving money require some lifestyle changes. So, you need to keep patience and stay motivated while making changes in life. It is better for you to set a goal and try to achieve that. If you set a goal, you will always have that working in your mind, and you will constantly strive to achieve that. Once you are able to achieve the goal, you can reward yourself.

Lastly, there is no such rule or “Mantra” for breaking the paycheck-to-paycheck cycle. Living on less, changing lifestyle, and following a budget makes a difference over time. If you lose your patience while breaking the paycheck to paycheck cycle, talk to a financial advisor for support and motivation. Remember, with determination, you can start saving and the financial difficulties that you always had at the end of the month will go away.

Credit card debt is a way of life for Americans: Why so?

Credit card debt is a way of life for Americans: Why so?

“Credit card debt is a way of life for people in America” This statement is true.
According to the survey conducted by the CreditCards.com, 39 million credit card holders are carrying a balance from the year 2017. Well, this is the cruel gift of having credit cards. Because most of the people don’t manage their credit cards properly.

It is true that credit cards are the most convenient tools for purchasing items. People are using their credit cards to buy daily necessities. They also use credit cards to purchase things that they can’t afford in cash. Whereas, the credit cards should be used for emergency purposes or for buying an expensive item.
Though this statement is not fully justified. Because, if a person manages the credit card properly, then the card can be used for buying necessities and expensive items too.
Credit cards are convenient for buying daily goods as carrying cash can be dangerous and using a debit card is not secured.
But more important is repaying the credit card bill in full and on time, which most people don’t do and fall into credit card debt easily.

According to the survey of wallethub, the average credit card debt in America is $1.03 trillion. 6 in 10 young people in America have admitted that they make frivolous purchases with their credit cards and this would be the reason for their debt.
On the other hand, nearly 2/3 of Americans who are in debt, have said that they racked up debts to manage emergency expenses like car repairs or medical bills.

The survey also showed us some facts: “People are now more easy with their debt.”
As per the survey, 43% of people have said that credit card debt feels normal. Though, 46% of people have agreed that their credit card debt makes them feel stressed.

So, now, this is also true that for most of the people in America, credit card debt is a way of life.

Why are people getting trapped into the credit card debt?

Surprisingly, some people said that they never missed any payment, but still they are in credit card debt. They said that they know it will take years to finish paying down the debt. Why so?

Making only the minimum payments

Most of the people are making the minimum payments on their credit cards. But making only the minimum payments on your card is not enough. Because minimum payments make just a dent in the principal of the debt. You must repay the total balance with interest to the company. Carrying a balance means you will be in debt for a long time while racking up huge amount of interest.

Getting attracted to the credit card rewards

Remember, credit card rewards are marketing gimmicks. The credit card companies are trying to entice people by offering reward points or miles. But, these marketing tactics are actually forcing you to spend more (Paying 18% more to get 25% back in reward). Instead of spending more credit to get the rewards, you should concentrate on getting the reward for paying the bill in full.

How to avoid credit card debt

Here are some ways to avoid credit card debt to live a peaceful financial life.

Get a credit card with a lower interest rate

Don’t sign up for a credit card with a higher interest rate for some mere privileges like discounts, rewards, and mile. Also, some people signup for a balance transfer card. Make sure you get the card that doesn’t charge a transfer fee.
Usually, the balance transfer card offers 0% APR for the first 15-21 months (Introductory offer) with no annual fee and a low or zero balance transfer fee. Here you need to move the balance to this card to repay the debts easily. However, you should try to repay the balance within the offer period. Otherwise, the interest rate will be added up and you may end up paying even more.

Avoid using credit cards randomly

It is true that credit cards are safe as you can move cashless. But it is also true that it doesn’t let you feel that you are running out of affordability. Remember, you shouldn’t use a credit card to buy whatever you want. Because credit cards are not free money. Use a credit card to buy things when you are sure about your affordability. In short, don’t buy things with a card that you can’t afford with cash.

Build an emergency fund

Some emergencies can force you to use credit cards. In most cases, people don’t repay the bill in full and fall into the debt cycle. Thus, you have to build an emergency fund to avoid using credit cards all of a sudden. Try to build 3-9 months worth of savings in an emergency fund to manage emergencies like sudden illness, accident, job loss, and natural calamity.

Lastly, though it is true that accumulating credit card debt is becoming our habit. But you can still stay away from this debt by living life with less. If you practice frugal living, you can easily avoid the enticing living style that most of the people are living now.

All-you-need-to-know-about-debt-settlement

Debt settlement: Everything you need to know about it

Most of the people in our country are struggling to pay off their debts. The huge debt burden forces them to file bankruptcy to get rid of their debts. However, there is another option that can help debt-ridden people to get out of their debts.
If you realize that you are unable to repay all your debts, then you can settle your debts. Debt settlement comes across as an advisable option to get you out of debts instead of filing bankruptcy.
Though you can approach the debt settlement companies to settle your debt, you can settle debts on our own.
In this article, you will understand everything about debt settlement.

What is debt settlement? How does it work?

Debt settlement is a process where the debtor negotiates with the creditors to reduce the total debt amount. The debt settlement process can be done by the debtors or with the assistance of a debt settlement company.
In a debt settlement process, you should negotiate with your creditors to reduce the debts.
Debt settlement works well only when a debtor has been delinquent on payments. Unless a valid reason is stated to reduce the amount of debt, the creditor is not going to accept any amount less than what is originally owed.

Can you consider debt settlement to settle both secured and unsecured debts?

You can only settle unsecured debts like credit card debts, medical bills, store credit card, deficiency balances, and utility bills. You can’t settle secured debts like home loan, and car loan. However, you can settle private student loans because these loans are nothing but personal loans.

Can you settle the debt on your own?

Though you can settle the debt on your own, the task of negotiation with the creditors can be difficult. Thus, you can consider debt settlement service to settle debt.
To settle your debt, you need to enroll in a debt settlement program. Debt settlement program is also known as debt negotiation program. So, once you enroll in a debt negotiation program, the debt settlement process starts. The debt negotiator in the debt settlement company performs the task of debt settlement negotiation with your creditors to reduce what you owe.

What happens in a settlement program

If debt settlement seems to be the right option for you, then you need to enroll with a debt settlement company to settle your debts. Choose a debt settlement company who will help with debt settlement. The challenge is to reduce the outstanding balance you owe to the creditors. Thus, you should enroll in a best debt settlement program so that you can find the best negotiator who will negotiate on your behalf with the creditors. In a good debt settlement company, the debt negotiators are well trained to negotiate with the creditors. They have a better idea on the situation. Because of their expertise, you can expect to get better debt settlement service. Your creditors can agree to settle your debt and you can get out of the debt by paying a reduced amount.

Debt settlement pros and cons

Though debt settlement is one of the best ways to get rid of the debt, it has some pitfalls. Before you enroll in a debt settlement program, you should know the pros and cons of considering the debt settlement option.

Pros of debt settlement

  • You need to pay less than you originally owe to the creditors

    If there is a successful negotiation between the debt settlement company and the creditor, then you are required to pay much less than what is initially owed on the account. Debt settlement process excels in lowering the total amount you originally owe as compared to a debt consolidation program or debt management plan.

  • You can save money

    If you enroll in the best debt settlement program, then you can save money through the debt settlement assistance. The debt negotiator will help you to save money by reducing the total debt amount through a debt negotiation program. Most of the times, the debtor can save less than 50% of the original debt, which can end up saving a lot of money.

  • You can settle your debt fast

    A good debt settlement company can help you get the best debt settlement assistance. Thus, you can settle your debt in a much lesser time than some other debt relief options.
    Debt negotiation eases the burden of debt by creating a concrete plan of action which is achievable for the common person.

  • You can repay debt more hassle-free

    Debt settlement plan allows you to save money in a trust account. The settlement company will disburse the amount among the creditors when you have saved the required amount in the account. So, by enrolling in a debt settlement process, you can get rid of your debts hassle-free.

Cons of debt settlement

  • You need to pay tax

    You may face tax obligations if you decide to settle your debt. Since, you are not paying the full debt, so you are saving money. Thus, you are entitled to pay tax on the total amount that you have saved through the debt settlement process.

  • You need to pay a fee

    Besides the fees paid to the settlement company for paying the creditors, you need to pay a fee to the settlement company for opting the debt settlement service. However, there is no upfront fee.

  • Debt settlement can hurt your credit score

    Debt settlement process may have a negative impact on your credit score. If you are unable to repay the debts in full, then it can have negative implications on your credit score. After you settle your debts, your credit report will be updated as “Pay as settled”. Thus it will pull down your credit score. However, you can negotiate with the creditor to remove it.

Tips to follow when you settle your debt

  • Be clear in your debt settlement negotiation

    If you are facing financial hardship and, due to that you are unable to repay your debts, then the creditors might be interested to negotiate with you. Instead of giving all the details about why you cannot pay the dues, come up with a few sentences that you can consistently use to talk to the creditors. Above all, be honest. Don’t tell everyone a different story, which may backfire.

  • Talk politely with the creditors

    Keep calm while talking to the creditors regarding debt settlement. You will worsen the situation if you lose your temper. Simply describe your financial hardship to convince them for the debt settlement. Be in your best behavior while communicating with the collector. Your attitude can make a difference.

  • Know what you can afford to pay

    Before considering debt settlement, figure out the amount that you can afford and pay. However, if you enroll in a debt settlement process, they will assess your income and tell you how much you can pay in debt settlement.

    Lastly, debt settlement has its advantages as well as disadvantages. But if you are drowning in debt, then debt settlement can be the best choice since you can repay debts by paying a lower amount. Yes, debt settlement process can hurt your credit score, but you can rebuild your credit score with time. You need to add positive information to your credit report. For example, making monthly payments on time, staying within the credit limit and paying the credit card bill in full and within time. So, instead of not repaying the debt at all, you should pay the debt that you can afford. If you totally ignore your debts, then the creditors will sell your debt to the debt collection agency to collect it. If the collectors win the judgment against you, then you can be sued for the unpaid debts. So, you should settle your debts before they are sold to the debt collectors.