Debt Settlement Strategy
Few people have a debt settlement strategy, even though debt confronts nearly everyone at some point. Plans are made for children's education, retirement and vacation. Yet often, none are made to account for the one thing that can throw a wrench in the works of all of these--debt. Although the common definition of the word is that of owing money, one intriguing definition describes it as a state of owing. Debt does, in a sense, involve a person in a whole other state of being. It can infiltrate every facet of one's life, affecting physical and mental health and cherished relationships. There ought to be a plan.
Some claim that Americans owe over 2 trillion dollars, and that most of this is from credit cards. Allegedly, the average American household with a credit card owes over $19,000. This seems shocking, but upon reflection it may be a fairly reasonable estimate. At any rate, no one can argue against the fact that debt is a significant part of most people's lives. A debt settlement plan is definitely in order.
At this point it may be useful to consider some terms which are used in books, articles and advertisements for financial services. Many offer a debt settlement strategy, but one needs to consider exactly what is being offered. Debt Consolidation is a term for a method of resolution in which the consumer repays all of the money which has been borrowed. The balances from various creditors are gathered into a single figure and a loan is made for the entire amount, often at a lower interest rate. This is a legitimate strategy, and is useful in that the matter is resolved and the debtor may save money in interest. However, a temptation presented by this process is when the consumer looks at the bills which have been cleared to a zero balance and forgets that the lump sum is still outstanding. He still resides in the state of owing. If this fact is not realized, and the debtor begins to use the recently cleared credit cards for further purchases, he or she will soon be in a worse state than when the process began.
Debt Settlement, on the other hand, is a strategy in which the debtor pays back a certain percentage of the amount owed, and the rest of the money is forgiven by the creditor. The debtor's burden is lessened, and the creditor receives back at least some money from their investment, without further time and money being required for legal proceedings. Although the debtor seems to receive the most favorable advantage, this may be a realistic debt settlement plan for the creditor as well, in some instances. There is an alleged debt settlement plan which is not fit to be considered as such but is actually a scam. This is known as the debt termination scam, or the monetary protest movement. The alleged debt settlement strategy is as follows: The basic idea behind this scam is that you never borrowed any actual money in the first place. Instead, your agreement with the creditor was, in effect, deposited. If a person borrowed against that account, he was essentially borrowing from himself. Since no 'real' money was involved, the debtor's loan should be terminated, without repayment being required. Obviously, this fantasy is based on equal amounts of fraud and wishful thinking and the people who perpetrate this method of settling accounts will generally find themselves the focus of a lawsuit.
In the previous situation, one can not help but be reminded of what the Bible has to say in regard to the matter of borrowing. Psalm 37.21 says, "The wicked borroweth and payeth not again: but the righteous sheweth mercy and giveth." Assuming that the reader is a responsible person who is willing to honor the agreements he or she has made, there is another sort of legitimate and ethical debt settlement strategy that can be employed. The solution is to design and implement one's own debt settlement plan. If this is done, no further consolidation or strategy will be needed, and a person can use such a plan to move permanently from the state of owing. Successful financial plans deal with three things: organization, forethought, and overcoming procrastination. Organization can be as simple as having a place for bills to be stored. Everyone has at some point chased after a bill or invoice that apparently decided to play a vicious game of hide-and-seek at a crucial moment. A basket, box or manila folder is an inexpensive example of a place where these unruly bills can be corralled.
Forethought is important in that decisions need to be made constantly in the shifting focus of events. Time needs to be set aside for paying bills and ensuring that goals are being accomplished. This does not mean that a major financial summit needs to be called. Just pick a time once a week to pay bills. During that time, take a moment to see if there is anything which may be done in a more fruitful manner. Is there a certain behavior which is sabotaging the effort to be debt free? Every account settled is a step toward achieving goals.
Procrastination is the last element which must be dealt with in order to have a successful financial plan. Overcoming procrastination can make the plan succeed or, if ignored, render it ineffectual. Everyone struggles with mundane tasks; it is easy to find plenty of things to do rather than deal with financial matters. A secret in overcoming procrastination is to remember that the dreaded task is seldom as difficult as imagined. If the process is started, one is generally surprised to find that the time and effort expended was much less than anticipated.
Debt Settlement SolutionsWhen a person looks for debt settlement solutions, he needs to know about the options available so that he can make a wise decision. Debt settlement help can include consolidation, counseling, or bankruptcy. In 2005, Congress changed the bankruptcy laws to make it more difficult to file under certain terms so that people don't rush into bankruptcy rather than trying to settle debts. With the first option, the amount of the loans is not reduced, but the debtors time to pay back the money may be changed to enable him to handle his out-of-control financial situation. In other words, the loans are compiled into one payment, perhaps with a reduced interest rate, but the principal remains the same. With debt settlement solutions, the amount of the principal is negotiated with the creditors to reduce that amount by perhaps as much as 50 percent. This can save the debtor thousands of dollars and reduce the length of time needed to pay back what is owed.
When a person asks for debt settlement help, the agency will also advise the debtor on how to avoid getting into this predicament in the future. Some of the tips that may be given are to reduce household expenses so that the family can live within its means. The single or couple will learn money management skills so that they can avoid future debts and poor purchases. Perhaps one of these skills is learning how to use credit cards effectively. For some people who are addicted to using credit cards, that may mean cutting them all up and avoiding applying for new ones. Another important skill to learn is how to start and build a savings account so that emergency funds are available at all times. Some agencies will even offer software that helps to manage checkbooks and control spending. With these skills in hand, it is easier to put into place debt settlement solutions that will last more than just a few years. The goal is to become debt-free and to remain that way through wise use of money.
When asking for debt settlement help, a person can find agencies that will give free consultations so that the debtor can compare one agency with another. During this consultation, the applicant will find out the types of services offered by the agency and will be given a suggested repayment plan outline that will show methods for repayment. The applicant can ask questions and receive quick answers from the staff. One essential question to ask is to find out the types of fees and costs that will be charged for the services. Some agencies have hidden fees that elevate the cost of getting out of debt. Because these agencies have worked with creditors for years, they know how to negotiate lower debt levels and also know about the internal policies of each company. Therefore, an experienced and able counseling agency can broker much better deals that a debtor can alone. At the same time, the debtor has to pledge to follow the agreed upon plan for repayment or the negotiations will not be effective.
A persons financial credit history is affected by two things: the payment history and the amount of debt. This is called the debt-to-income ratio. That means that a person who earns $50,000 per year will not be able to handle as much debt as the earner making $100,000 per year. At the beginning, a debts-management program will affect the debtors credit score, but as the balances are paid off, the debt-to-income ratio will lower so that the credit score can go up. But the debtor must expect to work for years at recovering a good credit score rating even when using debt settlement help. For some, the repayment process can take from twelve to thirty-six months, but since everyones financial situation is unique, no one can predict how long the process will take. A person whose financial health plummeted because of a decline in salary or a piling up of loans such as medical bills, the process can take longer than expected.
One of the problems with debt settlement help is that many people do not complete the program, leaving themselves in even deeper financial problems. If a debtor uses a counseling service, creditors may add a statement onto his credit report mentioning this fact. This can harm a credit rating, depending on the situation. The most important step to take for an applicant is to check up on the agency before signing up with its program. Some agencies are funded by credit card companies, and therefore have a conflict of interest in serving the debtor. Make sure the agency is licensed and get a written guarantee for how long the process will take. The process will not take into account money owed for taxes or for student loans, so the applicant must understand that no agency can lessen these debts because they are with the federal government, not with a private company. Also, when using debt settlement solutions, the applicant must also be aware of how the lessened amount of the loans will affect tax collection. For example, if the original amount of the loan was $5,000 and it was reduced to $2,500, the amount of the reduction ($2,500) will need to be reported as income.
Most people feel terribly discouraged when the financial health deteriorates to this extent. But God can give rest. First Kings 8:56 says, Blessed be the Lord, that hath given rest unto his people Israel, according to all that he promised: there hath no failed one word of all his good promise, which he promised by the hand of Moses his servant. It is possible to find debt settlement solutions in the midst of financial turmoil.