Has your debt just become so unmanageable that you can’t even imagine achieving debt relief? Have things gotten so bad you’re afraid to answer the phone because it may be yet another of your lenders calling or, even worse, a debt collector?
The reason why you’re having so much of a problem with debt may not even be your fault. It could be because you lost your job and have been unable to find a new one. Maybe you had a medical emergency that resulted in huge medical bills. Or you’ve just gone through a costly divorce that decimated your finances.
Of course, maybe it is your fault that you’re drowning in debt.
But regardless of why you’re so much in debt, you know one thing for sure. You’d like to do the right thing, get your debts under control and paid off.
First, the bad news. There’s just no way to get out of debt overnight. It probably took you some time to get deep into debt and it will take time to get out of it. However, here’s the great news. If you follow this simple, six-step plan you can achieve debt relief.
Step one: Be like a Boy Scout
You probably know the Boy Scout motto of Be Prepared. In this case, you need to be prepared to get out of debt. This means gathering up all of your most recent credit card and loan statements. You will also need to get your credit report from the three credit reporting bureaus – Experian, Equifax and TransUnion. The easiest way to do this is via the website www.annualcreditreport.com. Review all of them carefully looking for errors that could be effecting your credit score. This could be as harmless as a misspelling of your name or as serious as finding negative information about an account that isn’t yours.
You need to know your credit score and it’s very easy to do now. Discover now provides everyone’s credit scores whether you have its card or not. You can also get your score free at CreditKarma.com or CreditSesame.com. Don’t be shocked if you find you have a very low credit score because that’s the natural result of your debt problems.
Step two: Make a comprehensive list
The key to being successful in achieving debt relief to have everything written out in front of you. This means you’ll need to make a list of all of your debts including each creditor’s name, your balance, interest rate and the minimum monthly payment. Your list will also need to include the monthly amount required to pay off each of your debts in three years. In the case of credit cards, you can find this on your monthly statements. If you have loans, the information might be on their statements. If not, you will probably have to call your loan providers to get this information. Don’t forget to list any loans not on your credit reports such as medical bills or family loans.
Step three: Get your interest rates reduced
If you’re paying high interest on your credit cards or loans this can cause your debt to just keep mounting up. This also makes it more difficult to get debt relief. It’s possible you could get your rates lowered simply by calling and asking each of your creditors. However, you will need to have a “story” or reason why the lender should lower your interest rate.
If the bulk of your debt is student loan debt, go to StudentLoans.gov website and check out student loan consolidation and the income-based repayment plans available. You might find that a Federal Direct Consolidation Loan or a Pay As You Earn (PAYE Plan) could help.
Finally, you might consider getting a debt consolidation loan or doing a balance transfer to pay off those high-interest credit cards.
Step four: Calculate your total payoff number
In this step you will total your credit cards’ three-year payoff amount. Be sure to add the monthly payments of any other debts and then total it all up as your total monthly payment.
You now need to carefully develop a strategy for paying off your debts. Can you afford to make the total monthly payment you calculated in Step three until you have repaid all your debts? if not, you may want to contact a credit counseling agency or a bankruptcy attorney for advice. If you feel you can make your total monthly payment you will need to determine which debt to pay off first. You could choose either the snowball method where you first pay off the debt with the lowest balance or the avalanche method which means first paying off the debt with the highest interest rate. This will be your “target” debt.
Next, set up auto pay to make the minimum monthly payments on all of your debts except your “target” debt. Pay as much as you can on it until you have it paid off. Then choose a second “target” debt and begin paying extra on it until you have it paid off. Then as the old saying goes, “rinse and repeat.”
Step six: Monitor your credit score and make any necessary adjustments
Once you have your plan in place you will need to track things carefully to make sure that you’re actually making progress and make any necessary adjustments. You will need to monitor your credit score each month to see if it is improving. The good news is that over time it should. When you see it improving you might reconsider getting a debt consolidation loan or doing balance transfers to save money on those debts that are remaining.
Celebrate your debt relief day
Stick with your plan until you achieve debt relief because you’ve paid off all of your debts. You might want to actually celebrate your Debt-Relief Date or even turn it into anniversary event.
And finally, if you’d like more ideas for paying off debt, here’s a short video chock full of good tips.
Frequently Asked Questions About Professional Debt Relief
If you’re not convinced that this 6-step program can help you achieve help you achieve debt relief you have an option. It’s to hire a professional debt settlement company. Here are seven of the most frequently asked questions about debt relief through debt settlement
Q. How do debt relief companies work?
Q. The first time you contact a debt relief company, you will have a counselor that will review your financial situation with you and then discuss your options. If you choose the debt settlement option, you’ll be offered a program with the monthly payment you will be required to make each month and the amount of time it will take you to complete your program. You will receive a contract that should be easy to read and understand. If you sign off on it then you’ll longer be required to pay your creditors. Instead, you will transfer a set amount each month to an escrow-like account that you control. In other words, nothing can be done with your money without your permission.
Q. How does professional debt relief work?
Q. When you hire a debt settlement company you will transfer one payment a month to an escrow account instead of paying your creditors. When enough money has accumulated in the escrow account to settle one of your debts, the settlement company will contact you and ask that you release enough money to cover it. This process continues until all of your debts have been settled.
Q. How would debt relief affect my credit rating?
A. Debt relief through debt settlement typically will have a negative effect on your credit score. Some experts believe it will drop your score by around 80 points. The reason for this is that debts that have been settled are not reported to the credit bureaus as paid in full. Instead, they are reported as “settled”, “settlement” or “settled for less than the full amount due”.
Q. How much does professional debt relief cost?
A. If you use a reputable debt settlement company for debt relief, you will be charged a percentage of the amount of your debt. This can range from 15% to 25%. If you owed $20,000 and the settlement company charged you the full 25% your fee would be $5000. While that might sound like a lot, a good debt settlement company should be able to get your debts cut in half so that you’d still save $5000.
Q. How would debt relief affect my credit?
A. It will have a negative effect on your credit for the reason cited above. However, most lenders will look more favorably on you for having chosen debt settlement for debt relief rather than bankruptcy. This shows potential lenders that you at least did what you could to repay your debts instead of just walking away from them, which would be the case if you filed for bankruptcy. You’ll probably find it difficult to get new credit at a decent interest rate for some period of time after your debts have been settled. But this will get better going forward.
Q. What are debt relief agencies?
A. Debt relief agencies are typically called consumer credit counseling agencies. If you sign up with one of these agencies, you’ll have a debt management plan (DMP) that will call for you to send a monthly payment to the agency. It will then distribute the appropriate amount of money to your lenders based on your DMP. This is a way to achieve debt relief by consolidating your debts and without borrowing any money.
Q. Which debt relief companies are legitimate?
A. Legitimate debt relief companies are those that have at least an A rating with the Better Business Bureau and that belong to the American Fair Credit Council. Legitimate companies also have reviews online you can read as well as testimonials from satisfied customers. One of the best places to read reviews of debt settlement companies is on the site http://topconsumerreviews.com/debt-settlement-programs/. In addition, legitimate debt settlement companies never require you to pay a fee until they have settled your debts.