Debt settlement may be advertised as an effective way to reduce your debt. In most cases, a third-party firm will negotiate with your creditors to reduce what you owe, and that amount is generally paid over 24-48 months. However, there may be superior alternatives to debt settlement that may better fit your needs. Debt settlement has some negative things to consider and your credit score is one of them.
Debt settlement has become another means of handling high outstanding balances, and there are many people who seek settlement options to deal with high credit card balances. Debt settlement means that a creditor allows you to pay back less than your total outstanding debt.
The problem with debt settlement, however, is that the creditor will report that you “paid less than owed” to credit reporting agencies. This tarnishes your credit report and hurts your credit score for several years. There are various other options available to people who are thinking about opting for debt settlement. Let’s take a look at some of those options and how they can help you improve your financial situation.
Consolidate Your Existing Debt –
If you have one or more high-interest credit cards, it may be a good idea to consolidate that debt by transferring those balances to another card. A balance transfer may be an effective debt relief method as you may be able to reduce your interest rate from as high as 29.99 percent all the way to 0 percent. This is because most credit card companies offer interest-free introductory periods of up to 21 months for new customers.
A balance transfer is not the only way in which you can consolidate your debt. You may also choose to take out a home equity loan or line of credit. Both a HELOC as well a traditional home equity loan come with interest rates similar to a first mortgage, and they may be available to those with good or average credit. You could go from paying off debt with a 24% interest rate to paying off debt with a much lower rate of 4 or 5%.
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Another option may be to take out a personal loan with a low interest rate. While they used to be designed for those with poor credit, they are now tailored for individuals with both good, bad, and shallow credit histories. Personal loans are offered by banks, credit unions, and online lenders. It might make sense to take out a personal loan with an interest rate of 4% and pay off all of your high-interest rate debt that might have had interest rates as high as 25 or 26%.
Ask a Creditor to Waive Late Fees or Other Penalties –
When you miss a payment or make a late payment, a creditor may add a late fee or another financial penalty. This may work to increase your balance, which may increase the amount of interest that you pay on the loan. By asking your creditor to waive a late fee or reduce a penalty interest rate, you can reduce both the amount that you owe and the amount that you have to pay each month.
Creditors may be willing to waive a fee or reduce a penalty rate if you have a good track record with that company. For instance, your credit card company is unlikely to play hardball with someone who has just missed their first payment after making timely payments for the last five years. A creditor is even more likely to work with a customer if he or she is acting in good faith in trying to get current on a loan or debt obligation.
Look for Ways to Tweak Your Budget –
Paying down your debt may be as simple as cutting expenses or looking for ways to increase your income. For example, you may be able to save $100 a month by swapping out your unlimited cell phone plan for a prepaid plan. You may also be able to save money by swapping out a premium cable television package for a basic one or cutting cable altogether. Taking extra shifts at work or renting out a room in your house could be ways to increase your income. These steps may be able to help you pay your debt without having to pay a debt settlement company.
Non-Profit Consumer Credit Counseling –
One of the best debt settlement alternatives available to people who are suffering from heavy debts is to take help from a nonprofit credit counseling firm like Advantage CCS. As the name suggests, a nonprofit credit counseling firm provides credit counseling services and debt settlement alternatives to people without any profit margins in mind. These firms are solely focused on helping their clients and trying their best to get them out from out from under debt permanently.
Advantage CCS works with your creditors to sort out an easy and an effective payment plan so that you can repay your debt in manageable installments. You pay your debt in full, on time, and your credit is repaired rather than damaged by a settlement mark. Nonprofit credit counseling firms can sometimes get the interest rates lowered, making it easier for you to pay smaller amounts.
Debt Management Help –
Advantage CCS can also work with you to create a monthly budget, so that you learn to manage your finances moving forward, helping you stay out of debt in the future. Budgeting and debt management plans are the best course of action to take to stay on the right track financially. The best part about seeking help from a nonprofit credit counseling firm is that you don’t get stuck paying high fees to the company for their services. As is obvious, credit counseling firms are a much better option to standard debt settlement procedures, and should act as a viable option and should definitely be chosen for individuals who are thinking of surrendering to bankruptcy.
File For Bankruptcy –
Bankruptcy should always be seen as an option of last resort. However, for some, it may be the best way to obtain debt relief in a timely manner. Prior to filing for either Chapter 7 or Chapter 13 bankruptcy, an individual will need to undergo pre-filing bankruptcy counseling to ensure that he or she fully understands the consequences of his or her choice.
In a Chapter 7 case, unsecured personal or business debts may be discharged in a matter of weeks, and the filing will stay on your credit report for a decade. Secured debt is generally reorganized and repaid over three or five years in a Chapter 13 case. The fact that you filed for Chapter 13 bankruptcy will stay on your credit report for seven to ten years.
While debt settlement may be an option to help manage your finances, it is not the only debt relief option available. Therefore, it may be a good idea to talk with a credit counselor or another trusted financial adviser to determine what may be best for your financial situation and if any of these debt settlement alternatives work for you.
If you find yourself struggling with debt and considering debt settlement, contact Advantage CCS today. We have counselors available online, via telephone or in person.