If you have been struggling with debts for as long as you can remember, you need a debt reduction plan. This plan is another term for a debt management or debt settlement plan wherein you will hire a debt professional to negotiate with your creditors. The goal is to convince them that you are unable to pay for the original balance any longer. If the negotiations go to your favor, you will only be asked to settle a certain percentage of the original amount and the rest will be forgiven. The best case scenario will include waiving off of late penalty fees and lowering of interest rates.
Debt Reduction Process
In a debt reduction process, you will begin with an analysis of your financial capabilities. Together with the debt professional that you hired, you will be analyzing your income, expenses and the total debt amount that you owe.
Once the debt professional gets an idea of your capabilities, you will be asked to stop paying your creditors. Instead of sending payments, you will be depositing your money in an FDIC insured account. That account will serve as your settlement fund. This is the fund that will be used to negotiate with your creditors.
The debt professional will take over the calls and correspondences with the creditor or collector as you continue to concentrate on growing your settlement fund. When the debt professional and the creditor/collector reaches an agreement, you will be informed and asked if you agree to it. Only then will the money on your settlement fund account be used to pay off your credit card debts.
If you have saved enough, it can be a one time payment. If not, you will be given new terms that will include payment amounts that you can afford.
It is very important that you stick to this new agreement. If you fail in any of your payments, the deal is off and you are back where you started.
Tips to Reduce your Debts and Stay Debt-Free
While a debt reduction plan will definitely help you, it all boils down to your attitude towards handling your debts. You need to discipline yourself if you want to reduce your debts and to ultimately live a debt free life. Here are some tips on how you can achieve this.
Debt Reduction Tips:
- Aim to pay more than the minimum.
- If you cannot afford to pay more for all your credit cards, there are two ways to help you choose which credit cards to pay first. One is by allotting more payments to the high interest rate debts (money-wise, this logically better). The other is by focusing on the one with the lowest balance (this is more encouraging as you get small wins immediately).
- Track your expenses to see where your money goes. If there are unnecessary expenses, stop making them.
- In the event you get some extra money, do not splurge – prioritize your credit card bills!
- Keep your credit cards but do not close them yet. That will appear badly on your credit report.
Tips to Stay Debt Free
- If you cannot afford it, do not buy it.
- Maintain only one low interest credit card for emergencies. Do not carry it with you to avoid the temptation of using it.
- Save up for an emergency fund to remove the need for a loan when the need arises for a huge amount of money.
- Develop a wise spending habit. Curb that impulse buying behavior.
- Create a budget plan so you know where your income should go to. Set a budget for your leisure and entertainment expenses – and other expenses that you don’t really need. More importantly, stick to it!
- If you have to use your credit card, pay your bills on time and make sure the payments are more than the minimum requirement.
Should you need help in settling your debts, National Debt Relief can help you through their debt management program. All you have to do is to give us a call. We have debt professionals on standby to provide assistance and advice on your financial woes. You can also fill out the form on this page and a debt expert will get in touch with you very soon.