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.

How much is it helpful to refinance student loans after marriage?

When you get married, many separate things tend to become one. Being a married couple you may have to experience a lot of new changes in your daily lifestyle. You might also have to make various financial decisions, like combining both of your finances by opening a joint account.

The same can happen with your student loan debt. When you are a bachelor, your student loans have a different impact on each of your credit scores, as both of your papers are separate as well as credit reports.

But once you are married, one of your debts may harm the other’s credit score. Couples can handle their love life and debt separately with their own earning. Some couples opt for a new method; they choose to consolidate their student loans through a student loan refinance option.

If both of you have student loans separately, then you may try to consolidate your student loans under any one of your names. You might be interested in consolidating your debt together so that it’ll be easier to share repayment responsibilities and get out of debt soon.

Can you consolidate student loans with a spouse?

After graduating from the college, you might have multiple student loans on your shoulder, and possibly your spouse have it too. It may become difficult to manage both of your student loan debt with multiple lenders, monthly student loan payment, and track several due dates.

The stress due to this type of debt can take a toll on your mental health. And gradually, it may affect your libido. Approximately one-third of borrowers stated to have experienced a decrease in their sex drive due to student loan debt stress.

Refinancing student loans after marriage can combine both of your existing student loans into a single larger loan. Many times, student loan borrowers might have multiple other loans, so through consolidation, it can be easier to handle them. However, if you have taken out the loan under a Federal Student Loan program, you cannot consolidate the loan with a private student loan under the same name.

So, how do you consolidate both of your student loans? You need to find a private refinancing company and approach to them. These private refinancing companies may allow student loan consolidation with a spouse, but you must remember that you’ll lose all the benefits of federal student loan. These benefits may include access to income-based repayment programs, eligibility for deferment and forbearance, and eligibility for student loan forgiveness.

Both federal and private student loans are eligible for refinancing through a private lender. But before refinancing both of your student loans together, you must ask a few questions to yourself:

  • Which loans should you tackle first?
  • What money investment can you put on hold?
  • How will you make monthly payments?
  • Can your tax status affect the income-based repayment plan?
  • Who’s going to handle the payments?
  • What do you expect from the student loan refinancing?
  • Do the refinancing fit in with your other financial goals?

Find out all the answers first. Then have a look at these pros and cons and decide if refinancing your student loans with a private company will work best for you.

Pros and cons of consolidating both of your student loans after marriage

a) Pros of consolidating student loans with a spouse

Refinancing student loans after marriage can sound appealing. So, if you want to consolidate your student loan with your partner, it will make a lot of sense. Here are some unique advantages of it:

1. You can manage the total debt with one easy payment

If you and your spouse have multiple student loans, it might become a headache to keep track of those due dates and multiple payments, every month. While handling so many accounts, it’s quite easy to make mistakes and forget payments. This may hurt your credit score and even cause you heavy late fees.

While opting for spousal loan refinancing, you may consolidate your multiple student loans into one. After doing so, you’ll have one due date to remember and one easy monthly payment to make.

2. You might save thousands from your wallet

When you and your spouse want to combine your loans and apply for a refinance, the lender might check both of your income and credit reports. So, both of your credit score and credit history will be evaluated while determining the new refinance loan terms. If one of your records are good, and your income and creditworthiness have a decent level, you might be eligible for a lower interest rate.
If both of you can qualify for a lower interest rate, you can easily manage to save a decent amount over the total loan period.

3. You could get a long term with a lower monthly payment

When you take out the refinancing loan to consolidate both of your student loans, you can choose a repayment term that suits you the best. If you have a shortage of money or having a financial hardship, you can opt for a longer repayment term. So, it’ll reduce your monthly payment to a significant level.
It is right that if you go for this method, you’ll pay more in interest over the length of the loan. But, on the contrary, you have a breathing space every month from paying a good amount that may harm your budget.

b) Cons of consolidating student loans with a spouse

While consolidating your student loans with a spouse comes with good benefits, there are some potential drawbacks also that you should consider before making the final decision.

1. You have to give up all the federal benefits and protections

You need to work with a private lender and refinance your student loans if you want to consolidate your loans together. If you have federal student loans (loans from the Department of Education) along with private student loans, you have to refinance the loans through a private lender. But don’t forget you have to let go all special federal benefits and protections when you refinance. These may include:

  • Income-driven repayment (IDR) options:
    It may be available based on your income and loan balance. With an IDR plan, your loan payments will be set at a percentage of your current income. If you refinance through a private lender, you’ll lose access to IDR plans altogether.
  • Loan forgiveness:
    If you refinance your student loans through a private lender, you’ll lose the privilege to opt for the Public Service Loan Forgiveness program.
  • Loan discharge:
    With federal loans, you may opt for a special option where your student loans could be discharged. For example, if you or your spouse become disabled due to any reason, you may apply for Total and Permanent Disability Discharge. But if you refinance, you’re no longer eligible for the loan discharge option.

2. You might have to carry your spouse’s debt even after a divorce

Unfortunately, if your marriage ends up in divorce, you still have to make payments on the refinance loan every month, considering the loan is taken out by both of you.
Any debt that is taken out before your marriage is solely yours. After the marriage, your spouse isn’t responsible for the student loans you borrowed while in college. If you divorce, the debt remains in your name.
If you consolidate your student loans with your spouse and refinance the loans in both of your names, both of you are equally responsible for paying off the debt. Even after a divorce, if one of the partners doesn’t keep up with the loan payments, the other one is still responsible for making them. If the 2nd person is you, it may affect your budget drastically.
So, you need to keep these cons in mind and make your final decision regarding student loan refinancing after marriage. But if you consider overall benefits and drawbacks, spousal loan refinancing can be a wise solution to help you manage your student loan debt.
So, do your homework and understand all the pros and cons of consolidating student loans together, and make the right choice for your family.

Debt consolidation program – How to consolidate debt in 7 steps

Do you have more debts than what you can handle? Are you having a hard time managing multiple bills? Will you feel much better if you have to make only one payment to creditors every month? If your answer is ‘yes’ to all the questions, then you can enroll in a debt consolidation program. But before you enroll in the program, let’s find out how to consolidate debt and who offers the best debt consolidation programs.

What is a debt consolidation program?

A debt consolidation program combines unsecured debts like payday loans, medical bills, and credit cards into a single monthly payment plan at a low-interest rate and an easy debt relief plan. In most cases, debt consolidation services are offered by debt consolidation companies. You make a single monthly payment to a debt consolidation company and they distribute it among your creditors. The process continues till you pay back all your creditors.

Read: Can debt consolidation be useful to you?

How to consolidate debt in 7 simple steps

In a debt consolidation program, you can consolidate debt in 7 simple steps, and those are:

  • 1. Pen down the number of debts you have along with the interest rates.
  • 2. Calculate how much you can pay on your debts after evaluating your budget.
  • 3. Sign up with a debt consolidation company.
  • 4. Complete all the formalities and enroll in the debt consolidation program.
  • 5. Explain how much you can pay every month to the debt counselors.
  • 6. Wait patiently and let debt counselors negotiate with your creditors.
  • 7. When debt counselors and creditors reach an agreement, start making monthly payments (which includes the debt consolidation fee) until you pay your bills completely.

What are the various types of debt consolidation programs?

In this country, you can enjoy 3 types of debt consolidation programs and these are:

  • Credit card debt consolidation programs where you consolidate your credit card bills into a single monthly payment plan.
  • Payday loan debt consolidation programs where you consolidate cash advance into an affordable repayment plan.
  • Medical debt consolidation programs where you merge unpaid hospital bills into a lower monthly payment plan.

Debt consolidation programs – Pros and cons

Pros of debt consolidation programs Cons of debt consolidation programs
You have to make one payment to one source every month You could spend more if the tenure of the program is too long or the fee is high
You have to manage only one bill You can get scammed if the debt consolidation company is fraudulent
You can save money on interest rates, late fees, and penalties
You can simplify your finances
You can eliminate debt fast

Who offers the best debt consolidation programs near me

  • Debt consolidation companies having proper accreditation and affiliation.
  • Debt consolidation companies having an affordable fee structure.
  • Debt consolidation companies that know the state and federal laws properly.
  • Debt consolidation companies having good track records and success rates.

See also: Multiple debts? 9 Ways to choose a great debt consolidation company

Debt consolidation program vs loan – Which one is a better option?

Debt consolidation programs roll high-interest unsecured debts into an affordable single monthly payment plan. When you sign up for a debt consolidation program, the debt counselors negotiate with your creditors for a payment plan with a low-interest rate. They talk about the financial problems you’re in and request them to cut down the interest rate on your bills.

Debt consolidation loans work in a completely different manner. With a debt consolidation loan, you replace your existing debts with a new loan at a low-interest rate. This means you pay off your existing debts with a new loan to save money. The new loan has fresh terms and conditions. So you may get more time to pay off the debt.

Now, the main question is, which one is a better option? A debt consolidation program or a loan?

According to many people, a debt consolidation program is better than a debt consolidation loan due to the following reasons:

  • It’s easy to qualify for a debt consolidation program. All you need to do is submit a few documents and pay the debt consolidation fee. However, in case of a debt consolidation loan, you need a good credit score and assets to be eligible for it.
  • When you look into debt consolidation for bad credit, a program is a good option for you. There is no credit check in case of a debt consolidation program. However, in case of a debt consolidation loan, lenders check your credit report and score. They determine the interest rate on the basis of your credit score. If you have poor credit, be prepared to pay high-interest rate on the debt consolidation loan.
  • You may lose your assets in case of a secured debt consolidation loan where you have to pledge collateral against it. If you fail to pay off the new loan, then lenders can seize your assets. You can’t do anything.

Is there any alternative to a debt consolidation program?

The decision to eradicate debt is much like the decision to shed those extra pounds from your body. The sooner you get started, the better for you.

Debt consolidation helps you to merge multiple debts into a repayment plan as per your convenience. However, if you have secured debts, then a debt consolidation program is not what you need. It won’t make your financial life easier. In this case, you might need to look at refinancing or bankruptcy as your way out.

If you want to cut the debt amount into half or more than that, then debt settlement is a good option for you. In this program, the debt negotiators bargain with your creditors for a lower payoff amount owing to your financial hardship. They try their best to settle your debt with a lump sum payment to creditors. The only negative side of debt settlement is that it drops your credit score since you’re not paying the full amount. You won’t face this problem in debt consolidation programs because you’re paying the full amount.

Here is the best debt settlement advice to consider prior to enrolling in the program.

Are you knocking off credit card debt the right way?

Are you knocking off credit card debt the right way?

Ultimately there are 2 ways to pay off credit card debts

(i) Pay off your debts in full. This means paying the full interest and principal.

(ii) Pay less than what you owe. This means keeping maximum amount in your pocket and paying the minimum amount to your creditor.

Now there are 4 ways to pay less than what you owe:

  • Debt settlement
  • Debt management
  • Credit card balance transfer method
  • Bankruptcy – Chapter 7 and Chapter 13

Debt settlement brings down your outstanding balance by more than 40%. The figure varies depending on the creditor and the overall amount.

Debt management pulls down the interest rate depending on your affordability.

Bankruptcy brings down your payoff amount through court’s intervention.

Credit card balance transfer method is a smart way of consolidating your debts. Here you can transfer your balance to a 0% interest credit card and pay off the outstanding balance within the introductory rate period. You can skip paying the high interest on your card.

There is yet another logical way to pay off your credit card debt. You pay a set amount on all your credit cards. Dedicate the remaining amount on the credit card with highest interest. It’s the optimal behavior.

The best and the most logical way to pay off credit card debt is to attack the card with the highest APR.

This process seems to be easy and practical right? But most people aren’t knocking off credit card debt in this way.

How are consumers paying off credit card debt?

A recent study on 1.4 million credit card holders having revolving balances revealed a few startling facts. The study was conducted to know how these people are splitting payments between credit cards. Are they splitting payments depending on interest rates or overall balance?

Revelations

  • Debtors are allocating only 51.5% of their extra payments to the credit card with high APR. But the right way to pay off credit card is devote 100% of your extra payments to the highest interest credit card.
  • Only 10% of credit card holders are paying off debts the right way.
  • Debtors are evenly splitting their payments on credit cards irrespective of the interest rate and the number of cards in their hands.
  • Debtors are losing money on interest payments annually. Those who have 2 credit cards are losing $90 every year due to unnecessary interest payments. Those who have 5 credit cards are losing $327 every year for the same reason.
  • Top 10% of debtors with 5 or more credit cards are wasting $1000 every year due to improper allocation of payments.

Psychology behind the illogical consumer behavior

Some financial experts suggest debtors to pay off their smallest balances first for easy wins and motivation. But credit card holders are not doing that. What is the psychology behind it?

If you study all the payment models minutely, then you’ll realize that ‘balance-matching’ model describes the card holder’s peculiar behavior perfectly. In the ‘balance-matching model’,

“individuals match the share of repayments on each card to the share of balances on each card”

Suppose a card holder owes $12,000 on one card and $6000 on another one. He can afford to pay $1500 in a month on the 2 cards. There is a greater probability that the card holder will pay $1000 on the first card ($12,000) and $500 on the second one, irrespective of interest rates.

The psychology behind this behavior is that balance is the first thing that comes to mind when card holders think of credit cards.

The balance is shown at the top of the credit card statement in big prints. Moreover, individuals have a greater tendency to use “’matching’ heuristics in decision-making.” Card holders mostly make payments in relation to balances instead of interest rates. They are giving more importance to numbers instead of statements.

Most consumers don’t have any idea of where to start when they have huge credit card debt. They become clueless and thus start repaying debts in completely wrong order.

People are confused. They don’t know how their APR changes their monthly outstanding balance. This involves loads of calculations – daily rates, annual rates, daily balance, etc. It’s not that easy.

What is right and what is wrong?

Tough to say. Some financial experts recommend paying off the smallest debt first due to the emotional motivation. The psychological boost is a big thing for many debtors. Plus, this appears to be the simplest thing to do.

But is this the right financial move?

If you want to keep the maximum amount in your wallet, then this isn’t the best financial move. You should target the credit card with high APR and try to knock it off as soon as possible. Just look at the last part of the multi-page credit card statement. You’ll get the APR information there.

Use free online debt payoff calculators to figure out how much you can pay and save on your existing debt. Use this interactive APR calculator to figure out your yearly interest payments and other expenses. Apart from these calculators, you can use credit card payment calculator for eradicating your credit card balances.

Conclusion

Are you confused like most Americans? Do you want to pay off your credit card debt in the right way? If so, then call or make an appointment with a reputed financial company and get advice on paying off your debts.

tips-and-advice-about-debt-settlement

Best debt settlement advice to consider prior to enrolling in the program

Debt settlement services are normally offered by a third-party organization who can help you to reduce your debts by negotiating with your creditors or debt collectors. You may also negotiate with the creditors and settle your debts on your own. But it also comes with some risks which may create problems for your finances.

Practically, you should usually avoid negotiating with your creditor to settle your debts less than you owe as settling debts may damage your credit score. That’s not all, you might have to pay some tax on your settled amount. In the end, you may notice that you have paid way more than you saved.

If you still consider a debt settlement program, it’s also important for you to do proper research to avoid debt settlement scams.

The sole purpose of this content is to provide you with tips and suggestion on debt settlement. But before discussing further, I would first like to explain the debt settlement process a bit.

How does debt settlement work?

Debt settlement normally lowers the amount of unsecured debts by negotiating directly with the creditor. On the other hand, it is an opportunity for the creditors to collect their unpaid debts as much as possible.

You can settle your debts best when you’re behind on payments. If you’re still current with your debt payments, there’s no logic behind starting a negotiation with the creditor. If the creditor is still getting the money on time, then why should they  accept a settlement offer?

So, you really need to be behind on your monthly debt payments for at least 3 months, if you want to initiate a successful debt settlement process.

Once the process begins, you have the option to make two basic types of settlement plans. In both cases, you will make the offer to your creditor to settle your debts on a lesser amount than you owe. But if you look closely, the payment strategy is quite different. Let’s have a look at the plans:

  1. A single lump sum payment – You can negotiate with the creditors and try to get them to agree for accepting a lump sum payment and settle the account. The amount is usually less than the total debt you owe to the creditors.
  2. A monthly payment plan – You may negotiate with the creditor and arrange a payment plan (usually 4 payments) which will give you several months to repay the debts.

The first option is normally more successful than the second one. Most of the creditors like to get the money as a lump sum payment, rather than getting it on small installments, on a defaulted debt. Typically, the creditors will agree to accept payments under a monthly payment plan if it really make sense to break the total payments over a short time .

You can get help from debt settlement companies, also called “debt relief” or “debt adjusting” companies. The companies will provide you with a debt settlement program to get you out of unsecured debts once and for all. They will get an authorization from you to contact your creditors on your behalf. After contacting, they will start negotiating with the creditors and make a better repayment plan.

Debt settlement companies will usually  charge you a fee, often a percentage of the amount saved by them on your debts.

Now let’s move onto the next stage. Here we will discuss some tips you should consider before settling your debts.

Best debt settlement advice to consider prior to taking help of settlement

1. Be proactive, stop waiting

Don’t wait for reaching out to your creditor until your account has been charged off. A charge off account means you are more than six months behind on your payments. A charged-off account is known to the creditors as an account which has less prospect of getting repaid again. But don’t forget, being charged off doesn’t mean that you no longer owe the debt.

You should contact your creditors quickly and initiate debt settlement. Stop waiting and plan a good settlement offer that the creditor can’t refuse.

If you contact your creditors soon with a positive approach, most of the them would agree to agree with the settlement offer. If you take too much time to ask them, there’s a probability that they might sell off your account to some third party collection agency for a lower value, and that’ll be considered as a loss. So, in this situation, creditors or lenders may do anything to avoid such a loss. So, chances are there that your settlement offer might be accepted sooner than you think.

2. Enroll in a settlement program together if you aren’t single

If you have a spouse or a partner, go and sign up for a debt settlement program together! It is the best debt settlement advice I can give you to maximize your savings. But, you must first consider these things:

  • Which one of you is just an authorized user on these accounts?
  • How much debt do you have alone?
  • How much debt is in your spouse’s name?
  • How much debt do you have in both of your names?
  • Does it make sense to settle both of your debts, or only one of yours is OK?

If you and your spouse have $60,000 in credit card debt but $45,000 of it is in your spouse’s name, it would be wise for you to maintain your payments instead of settling your debts.

This way, one of you will be able to maintain your good credit. So, if a situation comes where you need a better credit, before re-emerging from the effect of debt settlement, you’ll have a good credit record with you.

3. Don’t make an unrealistic offer

If your creditor is ready to accept your offer and allowing you to settle your debts through monthly payments, you must set the payments at a level where you can afford it financially.

When you start negotiating with the creditors, try not to set a debt settlement plan that is unrealistic.

Most of the time, debtors, who offered a big amount as monthly payments, are able to make only the first payment and then miss rest of the payments. As a result, they fail to carry on with the debt settlement payment plan. In such cases, the account may be referred to a collection agency.

4. Consider the estimated time of the debt settlement program

Some people might think that settling debts may take just a phone call to the creditor and a couple of months to complete the process. But this is not the truth. Negotiating with the creditors may take time. The creditor must accept the settlement offer and agree with the terms you are adding with the offer. Sometimes the creditor may also give a counter offer.

In the end, you and your creditor should find a common ground to agree with each other.

But, taking too much time to settle your debt may also increase the chances of a third party involvement.

Why? It is because while you’re negotiating for debt settlement, you’re already behind on your payments for at least 3 months. If you take more time, your creditors may become restless and transfer the account for collection. You might be sued if you are delinquent for 12 to 18 months. So as soon as you are ready to eliminate your debts through a debt settlement program, you should always check the approximate duration of it.

5. Rebuild your credit with proper planning

Debt settlement may harm your credit score almost as bad as bankruptcy. The exact impact on your credit score may vary depending on the other information on your credit report. But, if you have a FICO score more than 700, your credit score may get a blow between 140 to 160 points.

You need to stop your debt payments for 3 months (at least) if you want to join in a debt settlement program. Once you settle your debts, it’ll be reflected in your credit report as “paid settled”. You need to stop your debt payments for 3 months (at least) if you want to join in a debt settlement program. Once you settle your debts, it’ll be reflected in your credit report as “paid settled”.

In this situation, you need to stay calm and focused on rebuilding your credit score. There are some good ways to do the same:

  1. Check your credit report – Check your credit report on a regular basis from your 3 major bureaus. Dispute errors if you find any and try to remove bad items asap.
  2. Catch up on your delinquent payments – After settling your few accounts, try to keep up with your other credit accounts and make the  missed payments.
  3. Pay Your bills on time – If you are getting any new loan or credit cards, make sure to pay the bills on time and in full.
  4. Don’t close old credit card accounts – After settling your credit cards, do not close the accounts. Old credit accounts have a long payment history; use them to rebuild your credit.
  5. Maintain good financial habits – Track your spending and prepare a suitable budget to allocate your money in different categories. Avoid excessive shopping and use cash rather than a card. Increase your retirement fund 401(k) whenever you have money in your wallet.
how-to-settle-debt-and-save-your-credit

Can you settle debt and save credit? Here’s how to do that!

Debt settlement always carries the risk factor that your credit score will get hurt.

Not lying to you, but that’s really a serious issue. Debt settlement is definitely a good way to pay off debts, but it always comes with the side effect of lowering the credit score.

And, the truth is, there’s no such way you can save your credit, by doing settlement.

Credit score is a very tricky numeric value, that’s based on several conditions, formulae, and factors. And, the score is heavily dependent on how well you are performing with your debt payments.

Well, here’s the thing with debt settlement. You are paying an amount quite lower than the original amount you owe on the debt account. Which means, you are satisfying yourself but not the creditor!

Therefore, it’s pretty justified for the creditor to report the debt as settled, rather than listing it as ‘paid in full’.

This is where your score gets ruined.
An account, not paid off in full, is a red sign on your credit report and it looks really bad. It is, however, never revealed how a bad credit report results in a bad credit score, but isn’t it quite obvious?!?!

Therefore, we should be focused primarily on getting debt accounts rightfully recorded in credit reports, after you have done debt settlement.

Here’s how you should,

Settle debts without hurting credit score:

  • Be smart and make the first few approaches to the creditor on your own, and discuss these important things:

Tell the creditor, how badly you care about your debts! Say, that you really want to pay them off in full, but due to this family and social obligations (use teeth cracking words), you just can’t!

Tell with sheer emotion on your tongue that you want to settle your debts, as you really don’t wanna die being indebted! Tell the creditor that you won’t be able to rest in peace in your afterlife, if you don’t pay off your debts!

And, beg the man to make it work for you, or you will only have two choices left, embracing death, or filing bankruptcy and then embracing death!!

See, what the replies are….. If the horn-head agrees, then it’s now time to talk to him about your credit score. “If by any chance he can save it from crashing!!”
Listen to what he’s got to say and offer the proposal of offering some, under the table / in hand cash, to report the account as paid in full!

What if the creditor gets furious at your audacity, and says he can’t settle it??

Then, it’s time to,

  • Take help of a debt settlement company and discuss everything in the free counseling session you will receive from them:

When all your debt campaigns start to fail, the settlement companies are your saviors, I gotta tell you that!

They are experts in dealing settlement cases like nothing you can do on your own. So, after you contact a settlement company, they are going to first offer you a free counseling session.

If a settlement company is not providing you with any such counseling session, or charges a fee in your first approach, then you better not take help from that company.

In that session, they will discuss your debt problems in brief and hear anything important you need to say.
This is your time!
On top of getting your debts settled, you should ask them to take care of your credit score. Tell them that you want the debt account to be reported as ‘paid in full’ once settled.

There’s no reason for them to deny trying if they get a few Benjamins!!! But, see man.. Nothing will fall on your side, if you ain’t ready to spend a little!

Money talks, buddy, money talks! What do you think, the settlement company won’t offer the creditor a little cash to report the debt as ‘paid in full’? They definitely will, only that they won’t tell you.

But, it’s not our concern how they will deal with the creditors. Our job is to see whether or not you are getting a chance to save your credit or increase the credit score!

So, to be practical, these above two steps are the only way you can do a successful debt settlement and not hurt your score much.

Also, I am reminded of another thing.
Settlement companies usually ask you to halt your payments for a few months before they give the creditor a settlement offer. But, halting payments means your credit score will surely fall.

In such a case, you should talk to the advisor appointed by the company that you are concerned about your score and you don’t want to halt payments. See, if you can arrive at a fruitful solution.

Moreover, there’s absolutely no harm in checking out several settlement companies to get your desired services.

But, whatever it is, if you are doing a settlement, then you can expect to see your scores drop. A few points drop should not keep you worried.

And, once you get the debt settled, and it’s gone away for good, you can again focus on rebuilding your credit score, which won’t be that tough!

If however, you are caring too much about your credit score, then I believe settlement is not for you. It’s better you go for debt consolidation, and check out how consolidation can help you with debts, when you want to increase your credit score, altogether!