If you are burdened with debt, you may have considered debt settlement at one point. Some people question if this debt solution is a legitimate way to get out of debt.
To set aside your doubts – settling your debt is a legal and effective way to get out of a bad credit situation. The truth is, there may be companies out there who will trick you out of your hard-earned money. These are the companies that give debt reduction a bad name. But if you happen to get in touch with a legitimate company that is sincere in helping you get out of debt, then that makes debt settlement a good idea.
In this day and age, people have gotten used to having credit. While there is nothing wrong with using credit for purchases, we still have a long way to go when it comes to controlling how we use it. According to the article from FoxBusiness.com, the average household owes as much as $7,800 worth of credit card debt. This is said to be the highest since the Great Recession happened. If you really want to improve your financial situation, you need to be careful when choosing the right debt solution to make your monthly payments easier.
Fortunately, there are so many debt relief programs that are suited to your specific financial situation. There will always be at least one program to help you get out of debt. The challenge lies in finding the right debt solution that is perfect for your specific debt and financial position. You want to make sure that you will apply to the program so you will not waste your time or energy in pursuing the wrong debt solution. While some people may not be convinced about settling their debts, there are specific situations that make it the perfect debt relief program.
3 signs that you need to settle your debts
In case you are wondering if debt settlement is the right option for you, here are three important signs that you need to look out for.
Your debts are already in default status.
According to an article published on 247WallSt.com, the overall rate of delinquency has improved. Despite that, the number of delinquent debts are still quite high at $613 billion. Of that amount, $436 billion is considered to be seriously delinquent – which means it is more than 90 days late. When your debt is seriously delinquent that means you are on your way to default – or you are already in default. If that is your situation, then that is a good sign that you may need to settle your debts with your creditors or collectors. There is a good reason why your debt is in default – you cannot afford your old payment terms. You want to keep things from becoming worse – this is why you need to act now and start negotiating for a settlement.
Your income will not get better in the next few months.
If you find yourself unable to pay off your debts, that is an indication that your income is compromised. You may have lost your job or something similar. Either that or your expenses have grown to a point wherein you can no longer afford to pay your debt obligations. It may be because you spent too much on your credit cards and the interest rate is too high. It can also be caused by a medical expense that you had to get in order to save your life or that of a loved one. The only way that you can cope is to increase your income. But if you know that your income will not improve in the next few months, then you cannot stay put and watch your debts grow as you miss one billing statement after the other. You need to consider debt settlement so you can solve your debt situation. If you let it grow without trying to solve it, that will only add to the stress that you are feeling.
You are on the brink of declaring yourself bankrupt.
The third and final sign that you need to consider settling your debts is when you are on the brink of bankruptcy. If you can no longer pay off your debts and you are contemplating bankruptcy, then settling your debts is worth a shot. According to the data from HuffingtonPost.com, more than 1.5 million people are filing for bankruptcy each year. The data revealed that 97% of those filing for bankruptcy are those from individual consumers. If you are one of these people, then you do not be too quick to file your petition. It is important for you to consider other options because bankruptcy can really bring your credit history down.
If all of three are true, then it is a good sign that you need to consider debt settlement.
How to move on after settling your debts
Once you have settled your debts, your work is not yet over. You need to rise from the effects of this debt solution. Not that it will ruin your credit reputation beyond repair. It can still be fixed but you also need to ensure that you will no longer land in the same debt situation. Here are some of the things that you need to look into after you complete the debt settlement process.
- Identify the root cause of the debt. Start by understanding what caused you to be in debt in the first place. If it was caused by your lack of emergency fund, then you know what to do to rectify that situation. If the cause of credit card debt is your impulsive buying habits, then you need to exert more control over your spending habits.
- Develop new habits. Once you understand the cause of your debt, it is time for you to develop new habits in order to improve your financial situation. For instance, you have to start learning how to save automatically. You should also consider waiting before you make a purchase – just to ensure that you are making the right decision and that it is not an impulsive one. The new habits should lead you to a better financial situation.
- Create a new budget plan. Now that you are free from debt (or at least most of it) after the debt settlement program, you need to create a new budget. When creating your budget, try to consider the new habits that you want to develop. Your budget plan should be able to support these – especially when it involves saving habits.
- Rebuild your credit. Finally, you should also work on rebuilding your credit. One of the ill effects of debt settlement is it will bring your credit score down. The truth is, the default status already brought you down. But it will not get better until you have finished settling your debt. This is why you need to do something about your bad credit. Use credit but make sure you pay your dues on time. Not only that, you have to keep your credit utilization low. That will help you improve your credit score over time.
Once you have done all these, it is important to make a commitment to improving your financial situation by implementing the right habits. Only then can you really be free from the dangers of too much use of debt.
Common questions about debt settlement
Question: What is debt settlement?
Answer: This is a debt relief program that involves negotiating with your creditors or collectors. You will ask them to allow you to pay only a portion of your debts through a settlement offer. Once they accept the settlement amount, they must agree to forgive the debt that is left unpaid.
Question: What debt settlement companies are legitimate?
Answer: You can distinguish the legitimate debt settlement companies from the not by understanding the Fair Debt Collection Practices (FDCPA). According to the FTC.gov, it is important to do your due diligence before hiring a debt settlement company. Check the State Attorney General’s office to see if the company is licensed to work in your state. You should also look into the accreditations and affiliations of the company.
Question: How can debt settlement affect my credit score?
Answer: Most of the time, you need to be in default before you can start the debt settlement process. It is also hard to improve on that while you are negotiating your debts. This is what causes your credit score to go down. The good news is, you can always rebuild your credit – after the settlement is completed.
Question: Are debt settlement companies scams?
Answer: Not all debt settlement companies are scams. You just need to learn how to separate the legal ones from the not. Read about the Fair Debt Collection Practices and visit the Federal Trade Commission to get more information about debt settlement companies.
Question: Is it possible to negotiate debt settlement on my own?
Answer: Yes it is possible. However, it will require your time and effort. You should be patient and you have to learn how to separate your emotions from the whole process. Otherwise, you might become frustrated with the whole process. Not only that, you have to distinguish the right time to offer the settlement – and when to hold back.
