Debt Settlement Programs
In troubling financial times, debt settlement programs can help families find solutions to pressing fiscal problems. Agencies that will work with clients to provide a number of helpful services can get families back on track financially and aide creditors in recovering defaulted funds. Trained counselors can negotiate with these creditors on behalf of clients who have been unable to make monthly payments. These negotiations can have a variety of results. Creditors may decide that they would rather not participate in any kind of solution for the debtor. This approach may not be in the creditor's best interest, however. Should a debtor opt to file for bankruptcy rather than work with a counselor to attempt to settle with creditors, the creditors may end up going away empty handed. In general, a large percent of creditors are willing to work with debt settlement programs for this reason. If the negotiations are somewhat successful, a client may see interest rates drop, fees and penalties discharged, or loan balances decreased. A skilled counselor will work to develop an individual plan on behalf of the client. In addition to developing a plan, the counselor may educate the client on such issues as budgeting, spending control, and the importance of paying off debts.
When a consumer decides to work with debt settlement programs there are a number of basic steps that will be taken. A counselor will generally begin by meeting with a potential client for an initial consultation. During this consultation, the client will reveal the names of all creditors as well as the amount of money that is owed to each. For most debt settlement programs, secured debts such as mortgages and car loans are not included. Unsecured loans are usually the main types of indebtedness that are addressed by these programs. With each loan there will be a monthly minimum payment. A counselor will add up the monthly minimums that apply to these loans to see if the client can at least afford to handle these payments. Some agencies will recommend that the client simply make the minimum payment on all loans but one. By concentrating on a single loan at a time, and making larger than the minimum payment on that loan, a debtor can slowly climb out of financial distress. After this loan is paid off, a client will tackle another loan. It is always a good idea to write the account number that is associated with a given loan on the payment check. This will help to clear up any confusion in the event of a dispute over payments made. Making a copy of the coupon that was provided by the creditor can also be helpful in the event of a dispute.
Some debt settlement programs involve obtaining a debt consolidation loan. There are many pros and cons to choosing a consolidation loan as an option. A major advantage of a consolidation loan is that it will roll all debts under a single umbrella and require a solitary monthly payment. A single payment can go a long way toward increasing personal cash flow each month as well as simplifying the process off paying monthly bills. In some instances, rolling all lines of credit into one can significantly reduce interest rates. One popular type of consolidation loan is the home equity loan. A borrower will draw on the equity that has accumulated in their home mortgage to pay off debts. Off course, since the home itself serves as collateral for the home equity loan, the indebtedness will go against the property. If a borrower should find it difficult to make payments on the new loan, they put their own home at risk. There are things to watch out for when utilizing debt settlement programs. Once monthly cash flow has increased, some consumers might feel tempted to return to previous spending habits. Returning to careless use of credit cards would defeat the purpose of actions that are geared toward getting a consumer back on track financially.
Another option in the area of debt settlement programs could be the choice of repayment acceleration. This is a measure that a borrower may be able to accomplish on their own without the help of a professional counselor. By zeroing in on specific debts and taking pains to erase the balance of the loan, a consumer can do a lot to repair their credit and resolve many pressing financial issues. It may take extra efforts such as taking on an additional part time job, or seeking other ways to increase income, but if successful, can make a huge difference in a family's peace of mind. A consumer who takes active steps to repair bad credit and bring indebtedness under control may find that they have much to be thankful for. Giving joyous thanks to God for His abundant blessings is encouraged in the Bible. "I will sing unto the Lord, because he hath dealt bountifully with me." (Psalm 13:6)
When dealing with debt settlement programs, there are a number of terms that a borrower should understand. Reducing debts and consolidating debts represent two completely different approaches. Reduction means that a counselor will negotiate with creditors to get the balances of outstanding loans reduced. Consolidation usually means that the balances of outstanding loans will not change, but a debtor will be able to pay the loans off over time through one monthly payment. Any time that a client does not understand a specific term or detail of an agreement, a reputable financial counselor should be able to provide clear answers.
Debt Settlement PlanPeople often need a debt settlement plan to help reduce financial burdens. With the ease of charging, many consumers find themselves in financial quandary. Completely wiping away obligations in one shot is next to impossible without seriously damaging one's history. Countless people find themselves victims of natural disasters, a victim of job loss, or other countless hardships besides credit card arrears. A debt settlement plan can offer an individual struggling under financial responsibilities hope. While an array of options may be available for financial reconciliation, four topics will be covered. The four topics are debt settlement companies, account consolidation, self-help methods, and snowballing.
Debt settlement companies offer a debt settlement plan. People need to be wary of entities that claim debit absolution, whether their claims state 6 to 8 months or a few years. Some of these entities offer help and begin the process, but leave the client months down the road and more indebt than before. Arguments ensue. People agree that some of the firms are legitimate and offer substantiate help. However, numerous experts and people who have been through a debt settlement plan with one of these companies say the plans can be costly. An establishment begins by collecting money for an administration fee. The administration fee is a percentage of the total amount owed by the client not the amount the company settles on with creditors. The client pays a monthly fee to the firm, which is placed in a savings account. Meanwhile, the business haggles with the creditors to reduce the bills. The client continues to pay the firm a monthly fee in addition to placing an amount into the savings plan. Finally, a onetime fee is paid to the creditors and the accounts look closed. A person needs to be aware of several factors before taking this route. Hundreds and even 1000's extra will be paid by the client to the firm for administration and handling fees. Sometimes, a creditor will not deal with a debt settlement firm. Going this route has a negative impact on a credit report if not handled correctly. Caution and research need to occur before settling on a company to use. "I have laid a snare for thee, and thou art also taken, O Babylon, and thou wast not aware" (Jeremiah 50:24).
Another option for a debt settlement plan is by consolidating accounts. Consolidating can take various forms. A person can find a consolidation company, bank, or other financial entity to obtain a loan. A person may try other methods for a loan such as a home equity loan or money used from a retirement fund, life insurance policy, and IRA. An individual is in sense borrowing money from himself or herself. When he or she makes monthly payments on the borrowed amount, the individual is replenishing the account. Another mean for consolidating is by using credit card companies. Many charge accounts are now offering an interest rate discount for balance transfers. If a person only has charge account bills and each carries a high interest rate, finding and transferring the balance onto a low interest rate card would save money. Nevertheless, a person should read the fine print before transferring balances. The new account should always be paid on time. In most cases, if a payment is late, even if by a day, the interest rate doubles. Then an individual is right back where he or she started.
To begin the self-help method and develop a debt settlement plan, an individual should know their credit score and have a copy of the report handy. A person can call a creditor and ask for a reduction in the total amount, monthly payment, or even a lowered interest rate. If calling about a total amount reduction, most moneylenders want the reduced amount paid in full at the time of communication or within a short length of time. A person should be prepared. A person can look at a few options to get the needed cash. Money could come from a tax refund, borrowed from an IRA, 401(k), or other such means, or come from selling personal items to gain cash. Before going too far into the debt settlement plan, an individual needs to develop a realistic budget. A log kept for one month records all expenses from candy to a house payment and all regularly occurring income. In order to stop the collection agency phone calls, an individual can write a letter to the agencies by return receipt. Once the agencies have the letter, they cannot call. If they continue to harass by the phone, the consumer can take actions against the agency harassing him or her. Although a risky choice for a consumer, one method for reducing the bill is to play a creditor against another creditor. Many times, a bill reduces up to 60% if the lender feels the consumer will not pay the bill at all.
The last debt settlement plan to discuss is snowballing. While experts disagree with each other over the practicality of this method, many indebt people have become financially free by following this plan. A household should list all debts, minus house and car payments, in order with the smallest amount at the top of the list. The minimum amount of each should be paid but a little extra is placed on the first amount. Once the first bill is paid in full, the money used to pay that statement can be placed on the next bill. Thus, the snowball effect occurs and the debt clears.
The consumer needs to be aware of a few items. A person must not create a new debt. The consumer must not ignore a bill. The IRS can and will garnish wages. With any transaction made with a creditor or collection agency, complete records must occur. Any debt forgiveness is considered an income and taxes must be paid on the forgiven portion. If a settlement occurs, always get the new amount and final paid amount on company letterhead.