Debt settlement is a process where a person or an agency on his behalf negotiates with creditors to accept less than owed in exchange for a one lump sum repayment. Debt settlement process might seem very stressful and complicated, but it does not have to be if you know how it works.
Step 1: A loan or credit card debt settlement process starts with a person deciding whether he wants to do everything on his own or to get help with debt settlement process from companies that specialize in this. During this stage a person learns what it takes to settle a debt on his own and evaluates his abilities and chances of getting the desired result.
At the same time, you should look locally or online for companies that offer settlement services just to be sure that you looked at all the options before making a decision. You will need to find an agency that is reputable, clearly states all the conditions of debt settlement through them, including all the fees and charges and expected results, although it should not promise any specific numbers/results.
Step 2: After evaluating the two options, you might decide that turning to professionals will be your best option. Once you are satisfied with all its terms, fees and charges, you will sign an agreement with this agency. However, before signing an agreement or continuing on your own, calculate if and approximately how much you will be able to save.
During this step, you will need to calculate exactly how much you owe. Then, you will need to estimate how much you can potentially save. This would be an estimated amount that your creditors will agree to forgive minus the fees and charges of the agency (if using one) and taxes to be paid on the amount forgiven. An agency should calculate these numbers for you before you sign anything (or decide to go another route).
Step 3: The next step in the personal loan settlement process includes stopping making any payments towards all the current loans. This is done (and usually required by the settlement companies, if you turn to one) to trick your creditors into believing that you are likely will not be able to pay back the debt at all, since they are not yet aware of the fact that you are going through a credit card settlement process.
During this phase, you should be aware that your debt is actually growing due to overdue payments that increase interest and add late payment fees. Instead, you will be depositing these payments into a different account that you will withdraw from to make that one-time payment, if everything goes well.
Step 4: After about three or six months, depending on how late you were with your payments, you or an agency on your behalf will contact all your creditors and try to talk them into reducing your debt under conditions that you will pay back the whole sum at in one payment.
This negotiation step can take a very long time if your creditors are not willing to settle for the amount you are satisfied with, but you should not allow it to go on for several years because you will be risking too much. Your or your representative’s negotiation skills will play a very important role here.
Step 5: Final step in the loan or credit card settlement process is an agreement to the negotiated terms and payment of the debt in one lump sum to the creditors, paying taxes on the forgiven amount as well as paying all the fees/charges to the settlement company, if you used its services.
Before signing the final agreement, you should carefully read the agreement papers, including any tiny text that some people tend to skip to be confident that this is what you want. If you or the agency were not able to come to a desired result, get ready to pay all the late fees, collectors, and larger monthly payments.
What is a Debt Consolidation Loan?
Today, many citizens pay at the same time several credit debts. Some take new loans because they are accustomed to always have money on hand, while others were forced by serious circumstances. The reasons may be different, but the financial burden in any case will be significant. In addition, having two or three loans at once, borrowers often simply become confused in their debts. This is where credit card debt relief loans come into play.
When the credit load becomes unbearable and you understand that in a little time you will stop being able to keep pace with the payment schedules, you should not wait until these assumptions become a fact. It is likely that your problems are due to high cost of your loans. In such a situation, the consolidation of loans will be an excellent solution.
Loan consolidation means combining several credit obligations from different banks/institutions into one debt with the help of a debt consolidation loan. With this procedure, the borrower connects all his loans and becomes the debtor of only one financial institution. As a result, you get two advantages at once.
First of all, you will no longer be confused in different payment schedules, where you must pay different amounts to several banks on different dates. You will have a single payment to one lender, which will allow you to better plan your budget.
Secondly, the main purpose of taking consolidation loans is to reduce borrowing costs. This is primarily done with the help of getting a new loan that has lower interest rate than what your other loan had.
But the main thing here is to carefully calculate whether you will receive the expected benefit. For example, you might get smaller monthly payments, but the accrued interest will be larger because the credit card consolidation loan repayment will be stretched out over a long period.
At the same time, if this is what you need to get up on your feet, then you might find it still reasonable to agree to smaller monthly payments and then refinance your new loan once your life crisis is over. Just remember that a credit consolidation loan should be taken only after you weight all the pros and cons and calculate all the long-term consequences.
Types of Consolidation Loans
There are different options you can choose from, but which credit debt consolidation loan is beThere are different options you can choose from, but which credit debt consolidation loan is best for you will depend on your personal situation. st for you will depend on your personal situation.
- Home equity loans – if your home is partially or fully paid off, this option would allow getting lower interest rate and have lower monthly payments;
- Credit card balance transfers – if you can pay off your debt in 6 to 24 months, consider transferring it to 0% interest balance transfer card (if you qualify);
- Loans from family or friends – one of best options because the terms and interest can be very favorable, but you risk ruining a relationship if you do not pay back as agreed;
- Personal/debt consolidation loans – if your credit score allows, take a new loan with better terms to repay current obligations.
Advice to borrowers:
- Before you begin to combine credit debts, you should carefully read the contents of each loan agreement.
- It is advisable to calculate in advance the possible benefits of consolidation, taking into account all the mandatory and additional costs.
- Look for a consolidation service from a proven credit organization with a fairly good reputation.
- It should be remembered that combining credit card debt with such loan only simplifies your repayment and slightly reduces the financial burden.
- Banks often deny borrowers the opportunity to transfer their debt to another financial institution, so you first need to obtain the consent of all lenders (or have the debt consolidation company do all the work).
Pay more than a minimum payment
If you truly want to get rid of credit card debt, then you will have to pay more than just a minimum required payment. Otherwise, your debt repayment will stretch out for the rest of your life because you will be paying off only a small portion of the actual debt and majority of your payment will be going to pay for the interest.
How much more than just a minimum to pay will depend on your income as well as your desire to pay off your debt faster. When you need a little extra motivation, in addition to an ability to finally get out of debt, think about a chance to actually save your money in the end because you will be paying less interest.
Get some quick cash
To enable yourself to actually start making larger payments (or at least minimum payments, if you were not paying anything before), consider selling everything you do not need. Looking around your house, you will be surprised how much stuff you have that you were not using for ages and can live comfortably without. If you are an impulsive shopper and got into the debt because of it in the first place, you might have even more stuff just lying around.
The good news is that there are many people who are willing to give you money for items that you do not need or can live without and you can use the extra money to help yourself get out of debt for free – without taking any other loans, paying late fees, etc. A temporary part time, seasonal job, overtime hours and even turning your hobby into an income will also allow you to bring in more money to get the ball rolling and get closer to being debt free.