Debt settlement is one of the options that can help you pay off your debts. It’s very effective – but you have to understand it completely. Because this debt solution will leave an effect on your personal finances.
One thing’s for sure. If you are like the average American with $90,460 worth of debt, you need to find a debt solution that’ll help you pay these off. Specifically, you need a solution that will help you reduce the amount that you owe. After all, more than $90,000 worth of debts is a huge deal. That could be a part of your retirement plan. Or it could have been used to make your present life more comfortable. This amount is significant enough for you to be able to invest in a business that can improve your financial situation.
As you can see, much is to be gained if you get rid of your debts. But if you have a high balance, paying it all at once is very unlikely to happen. So the next best thing is to aim for debt reduction. To do that, you have to opt for debt settlement.
How debt settlement works in your favor
The question is, how exactly can this debt solution help you? How can it improve your current situation?
There are three ways that settling debt can help.
Negotiate a lower amount
There’s a reason why debt settlement is also called debt reduction. The process involves negotiating with your creditors and lenders to allow you to pay only a portion of what you owe. You’ll tell them that you can’t afford to pay all of your debts. However, you’re willing to pay only a portion of it. Hopefully, it’s enough to cover the principal debt that you borrowed.
You might be thinking – will creditors or lenders agree to this? You might be surprised that they do accept debt settlement offers. But they won’t be easy to convince. Sometimes, the best way to convince them is to say that the only other option for you is bankruptcy. If you know that your financial situation won’t get better if you don’t deal with your debts, you have to explain that to your creditors. Tell them to accept your settlement offer because it’s better than nothing – which is a possibility if your debts get discharged because of bankruptcy.
In case you can’t negotiate debts on your own, that’s okay. You can always hire a professional to help you out. They can negotiate on your behalf so you can focus on the settlement money you’ll be offering.
Keeps collectors off your back
Another benefit of using debt settlement is to get debt collectors off your back as well. You see, when you default on your debt payments, your debt will be turned over to collections. These will be written off as a loss by the creditors and lenders.
When this happens, you can expect that the collectors will be more aggressive in asking you to pay what you owe. This is their job after all. They are trained to convince borrowers to meet their monthly payments. Oftentimes, they wouldn’t care about your current financial situation. They’ll keep on calling you to convince you to pay off your balance.
This causes unnecessary stress. But if you opt for debt settlement, they’ll back off a little. After all, you’re trying to do something about your debts. Even if you’re trying to negotiate for debt reduction, it’s still an effort to resolve your debt problems.
Removes stress
With the debt collectors off your back, do you know what happens? You’ll feel less stressed about your situation. Nobody’s bothering you every now and then to send your payments. You won’t feel pressured to exhaust yourself trying to earn enough money to pay off your debts.
But that’s not all. Debt settlement can specifically help you deal with the financial stress that comes with debt. It’s all thanks to the debt reduction. If you can convince the creditor or lender to lower your balance, that would make your debt payments feel more affordable.
And if you opt to get the help of a professional, it’ll be a lot easier too. They can take care of the legwork and leave you to focus on funding the debt payments.
Things to watch out for when using a debt settlement
While debt settlement brings a lot of benefits, there are also pitfalls that you have to look into. With anything that relates to your finances, you should always be careful. It’s very important for you to consider everything before you commit. Make sure you’ve gone through every possible option before you finalize what you’ll do to improve your current financial situation.
So before you try to settle your debts, here are some of the things that you need to consider.
Scams
When it comes to your finances, you’ll always be in danger of scammers. There are people who would want to take your money. If you fall prey to these people, you’ll be in trouble. Being scammed could get you further from the improvement that you want. It can make things worse and it might be harder to get out of your current situation.
The key to avoiding scams is to make sure you understand everything about settling debts. This is especially true if you plan to use a debt expert to help you. If you know what to expect from the process, you won’t be easily fooled. And before you put your trust in any professional, conduct thorough due diligence. Check out their website and read through their reviews. You have to know what the company has done in the past to figure out if they can be trusted or not. If you can’t find anything about them, then it’s best for you to find another company to ask for help.
High fees
Another thing that you should take extra care of is the high fees. At least, this is applicable to those who plan to get professional debt help. Some of these companies charge high fees. While there’s nothing wrong with getting for-profit debt relief companies, it’s important to check if you are really saving money in the process. There are companies who might charge you upfront or have hidden charges that will end up costing you more.
Make sure you look for a company that does not ask for upfront fees. They should also have no incident involving hidden charges. You’ll know if you read through their reviews – specifically any negative ones.
Find a company that offers transparency when it comes to their fees. These should be discussed upfront – so you can make an informed decision about whether you’ll get their services or not.
The bottom line is this – paying fees is not a problem as long as it’s worth it and will still save you money in the long run.
Credit score effects
According to reports, the average FICO credit score is 711 – which was said to be higher than the previous year. It’s considered to be a high score – so if you are somewhere near this number, then your credit score is a prime one.
But if you decide to use debt settlement, you might have to see this number dip a little. That’s because “settled debts” have a different effect on your score. Definitely, it won’t be as bad as bankruptcy. And what you have to understand is that your credit score will soon improve over time. Once you’ve settled your debts and if you don’t let your credit get out of hand again – your score will go up.
So don’t worry about the way debt settlement will affect your credit score. Once you’ve removed your debt problem, it’ll be easier for you to make improvements that’ll make your score reach its prime level again.
