Did you max out on your credit cards? Did you borrow from a creditor to pay off loans owed to another? Are you overwhelmed with your personal loans?
Debt settlement can help you pay off less than the amount you owe.
Usually, people opt for debt settlement when they’ve missed a couple of payments. Though this plummets their credit, yet it sets the ball of negotiation rolling where creditors become eager to hear from their clients. All this while, both interest and penalties are applied.
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Even debt collectors may call debtors for payment and have them sued for defaulting on the loans. However, the silver lining is companies agree to settle debts only on the grounds of a debtor’s financial hardship and more importantly to reduce their overall losses.
Good Debt Settlement Company
You can seek to work with a reputable debt settlement company. You should be well-versed with the legal debt settlement process. A good debt settlement company will share a good rapport with most of the creditors and will be heavily networked.
As a result, a debt settlement company expends its time and effort on your behalf to negotiate as well as settle your debts successfully. It’ll free you a lot of time that you can use for some other productive work.
Before settling your debts with a debt settlement company, read and understand the settlement plan offered to you. Go through the agreement carefully before entering into a contract. Make sure you’ve got everything in writing from the settlement company regarding the cost of their service.
It’s best to do your research on the debt negotiation services, and the companies that provide them.
Ask the settlement company to have your credit accounts marked as closed on your credit reports by the creditors and/or debt collectors.
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Whatever reduction you get out of a settlement, the amount of debt charged off will be taxed by the Internal Revenue Service (IRS). This is because charged off debt is potentially an income to you.
For further information, you may go through www.irs.gov to view laws regarding canceled debts from Bankruptcy Tax Guide and Publication 4681, Publication 908, Canceled Debts, Foreclosures, Repossessions, and Abandonment.
Avoid Debt Settlement Scam
- Makes lofty promises of guaranteed results to have your unsecured debts canceled or settled for pennies on the dollar.
- Asks you to stop communicating with your creditors without warning you about its consequences.
- Asks for fees upfront, without settling any of your debts or enrolls you into a debt settlement program.
- Forces you to make “voluntary contributions” covertly.
- Promises to wipe out your personal credit card debt with the help of the latest government program.
- Rushes to enroll you into a debt relief program without reviewing your financial condition.
- Declines to share important information with you and doesn’t provide a copy of the debt settlement agreement.
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Here’s a helpful checklist to avoid breaking your bank:
Having no budget to follow will compel you to overspend which will eventually prevent you from paying off your bills in full. A budget will provide you with a clearer picture as to where your money goes. Start your financial planning by listing all your expenses into different categories and the amount you’re spending in each of them. Use budgeting tools or apps (if necessary) to streamline the process.
Charging things you can’t afford with a credit card is a sure-fire way towards bankruptcy. All of it might start at one or two smaller items being charged with a card that you think you’ll pay off in a few months’ time. But what if the same thing happens every month? Now you could find yourself knee-deep in credit card debt, before even realizing it coming.
3. Cut back on expenses you can’t cope with
Are you a homeowner who’s facing a rising home maintenance cost ? You may need to cut back on unnecessary items to save money on them and use that extra dollars to cover up your home maintenance costs. For instance, share a ride to and from work with a colleague or neighbor who stays close-by or cancel club memberships. Moreover, cook at home and carry your own meals to reduce restaurants visits. Reduce your cost of living wherever possible – food, insurance, alcohol, entertainment, energy, and so on, and free-up disposable cash as much as possible. With increased purchasing power, you’ll be able to better manage your household’s needs.
If you want to avoid breaking your bank, then you shouldn’t spend more than you earn.
Instead, you should always set aside a neat 10 percent (but more is merrier) of your monthly paycheck as savings. Spending all of your paycheck will leave you cushion less that is potentially a deal-breaker in the face of debt settlement or other unanticipated expenses.
Finally, reward any improvement you make, even if it’s a minor one. It is a crucial step as it’ll keep you motivated when you feel as if you can’t take it anymore.
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