While not exactly profane, “debt” is indeed a four-letter word with many unpleasant associations. These include collection calls from creditors as well as being turned down for cars loans, apartments—and even jobs. When debt gets out of hand it can really ruin your life.
Fortunately, there are solutions to bad debt problems. Here are a few of the most effective ones.
If your credit is still in pretty good shape, you might qualify for a consolidation loan to aggregate your debt and pay it down more quickly. These loans typically carry lower interest rates than the loans you bundle, which makes repaying them less expensive too.
If you consider going this route, be careful to ensure the monthly payment is affordable and less than you’d be paying to cover all of your obligations. You also want to make sure the interest rate is in fact lower.
Debt consolidation can sometimes still be an option if your credit score is less than stellar. Companies like Consolidation Plus operate invitation-only programs to help people who are enrolled in debt settlement programs pay off their debts sooner.
Credit Counseling/Debt Management
Consulting a credit counselor and enrolling in a debt management program have also proven effective. Counselors will advise you regarding managing your money, developing budgets and dealing with creditors. In many cases, credit counselors will recommend enrolling in a debt management program, whereby you’ll make deposits into a fund from which your monthly payments are made on your behalf.
The advantages of this include the potential waiving of fees and interest rate discounts by your lenders. You’ll pay your debts in full, so the impact upon your credit score will be minimal. Just to be on the safe side, you should check with your creditors to be sure these agreements are in place. In other words, while it’s OK to trust, you should also verify. You should also be certain you can meet the terms of the agreements. Falling out of them can make your situation worse.
Also known as debt negotiation or debt resolution, this option offers the advantage of low monthly program payments and the resolution of certain types of debt. A debt settlement firm negotiates with your creditors to settle for less than the outstanding balance, which you then pay off.
Reputable settlement firms will first review your financial situation to determine if settlement is the right option for you. If you enroll in the program, you’ll be put on an affordable deposit schedule into a dedicated FDIC-insured escrow account, which always remains under your complete control.
When there is enough money in the account, the debt relief company will open negotiations with your lenders to settle your debts in full in exchange for payments that are lower than the outstanding debt amount. Once the debtor agrees, you’re offered an opportunity to approve the settlement. When you do, the funds you deposited are forwarded to your creditor as payment. The process repeats until all of your debts have been satisfied in this fashion.
It’s important to note certain types of debt are immune to this strategy. This includes mortgages, public student loans and car loans. Also, the IRS considers the forgiven portion of the debt income, so there may be tax ramifications.
You also have to be careful to vet any settlement company you consider, as there are some fly-by-night outfits out there. Look for endorsements and accreditations from organizations such as the American Fair Credit Council. Testimonials, such as this Freedom Debt Relief review, can provide insights to the veracity of a company as well.
There really are solutions to bad debt problems. If you take your time, choose wisely and stick with the plan you select, your future will be much brighter.