Credit card debt is one of the number one issue people are facing in this economy. As a result, people are looking wherever possible for help to get out of this debt. Many times people look to debt relief services, such as debt settlement, debt negotiation, or debt reduction.
Debt settlement allows for negotiations between the creditor and borrower wherein the balance of defaulted debt is settled with a reduced one-time payment. Often time, a person may save half, if not more, on what they owe. This allows for a debt free life within a couple of years, as opposed to a decade.
Prior to default, debt reduction may be a viable option. This option allows for the borrower to negotiate the interest rates and repayment terms with the creditor to pay down the debt in a more efficient manner. This process typically leads to debt freedom in three to four years.
Effects of Debt Relief Services
While it sounds like an amazing opportunity to get out of debt, debt settlement has many drawbacks. First, it is important to understand what must occur to allow for this option to exist. One must have defaulted on an account in order to be considered for debt settlement. While many people are shamed by this process, it is also important to remember that because you have defaulted, your credit can not get any worse by choosing a debt settlement option. Furthermore, by allowing yourself to default, you are securing an option that will help to get you out of debt, rather than accrue additional debt in the future. Many times the positive will outweigh the negative. In addition, once you have been through this process, it is less likely that you will return to the lifestyle that cause you to rack up such debt in the first place.
How to Choose the Right Debt Relief Company
It is important to choose a competent, reliable company to assist with debt settlement. Some things to keep in mind when choosing a company to work with include:
- Did the company provide a full disclosure of the advantages and drawbacks of a debt settlement plan?
- Did the company explain that credit lines must be in default to apply for settlement?
- Did the company provide you with the best options to help you succeed in settling your debt?
Another option in debt relief is debt reduction. As discussed above, this process utilizes negotiation to lower the interest rates owed to creditors and consolidate bills to one monthly payment to a credit counseling firm. During this process, the credit accounts added to the reduction plan are not available for use by the borrower. As a result, you are unable to run up your debt as you are working to pay it off. In addition, once the program is started, short of making increased payments throughout the duration, you may not choose to remove credit accounts already entered into negotiations. There are some things one should look for when choosing a company such as this:
- Make sure the firm is a non-profit organization. This will help avoid the pitfall of being given a plan that is unattainable simply for the firm to collect fees and a make a profit of your misfortune.
- Make sure the plan you are given lasts only three to four years at the most.
- Check to see if the firm is an accredited member of the Better Business Bureau with little to no complaints.
When choosing t make a decision regarding debt relief ask yourself the following questions:
- Is the long term goal of debt freedom worth the short term effects of bad credit?
- Do you truly want to pay off your debt over the next thirty years?
- Have you considered bankruptcy?
If you answer yes to the above questions, then it may be time for debt settlement or debt consolidation. It is best to try these options and avoid bankruptcy whenever possible.
Please be wise with your decisions. One area to avoid is debt consolidation loans, wherein you are borrowing money to pay off your debt and then creating a new debt. This is typically the same concept as “robbing Peter to pay Paul.” The interest rates on such loans are quite high and many times the monthly payments are costly. Furthermore, the loans take a minimum of five years to pay off, during which time, you still have access to the credit cards used to get in the debt in the first place. These programs are marketed well to make the consume feel as though they have made a wise decision, when in reality, they have repeated the pattern of building debt.
If you are in a bad debt situation and need a resolution to your situation, follow the link below and fill out an application requesting to speak with a debt analyst to see if something can be done for you.