Did you wake up this morning thinking to yourself, “Oh my, what am I going to do about all those credit card debts?” Or maybe you didn’t even have to think about them because you’re constantly receiving calls from debt collectors about your past due bills. Many people have described being seriously in debt as like being on parole from prison. You may be free to walk around but there’s always that that little voice in your head reminding you that you’re not totally free.
Is debt settlement for real?
You’ve heard or seen advertisements for something called debt settlement, which is where you pay your lenders less than you owe and they agree to forgive the rest of your debt. That can sound like a very attractive option but could you settle those debts yourself or do you need to hire a debt settlement company?
Yes, you can settle your debts yourself
Yes, it’s a fact that you can settle your debts yourself. Thousands of people have done this very successfully and saved millions of dollars in the process. But before you decide that debt settlement would be your salvation there are some important things to understand.
First, you’ll need to make a complete and detailed list of all of your debts so that you can decide which ones to negotiate first and what you want a request from each of your creditors. Your list should include the name of your creditor, the amount you were supposed to pay each month, the debt’s interest rate and its outstanding balance.
Next, you’ll need to decide which debts to focus on first. They will probably be your “fixed” debts such as your mortgage or past due rent, your automobile loan, your utility bills, any past-do federal taxes and your federal student loans.
NOTE: you cannot settle secured debts like mortgage or auto loans. The lender can simply repossess the asset if you default.
Determine your objective
Once you’ve decided which debts to focus on first, you need to decide what you want to ask from each of your lenders. For example, you could ask your mortgage company to lower the amount of your monthly payments on a temporary or permanent basis. Or you could ask for a reduction in your interest rate or that you be allowed to make interest-only payments for a while.
If your goal is debt settlement
In the case of non-secured debts your goal might be to settle them for much less than you owe. In this case you will have to stop making payments on the debts you want to settle for something close to six months. This is because very few lenders will be willing to negotiate until you are that far behind in your payments. Second, timing becomes crucial because after six months many lenders will sell off your debts to third parties such as collection agents. Once this happens, it becomes impossible to settle with your initial lender. Instead, you’ll have to try to settle with the collection agency.
Another consideration is if you are able to successfully negotiate a settlement you will need to have the cash on hand to pay for it as in most cases this is what the lender demand. There are instances where you might be able to negotiate a payment plan. But one of the biggest bargaining chips in debt settlement is if you can offer to pay off the settlement immediately either by wire transfer or cashier’s check.
Why would a lender ever agree to this?
While you might think that it wouldn’t be in a lender’s best interest to settle with you it can be. There’s the old saying that half a loaf is better than none and this is why a lender would settle with you – that if they refuse to settle you might declare bankruptcy and they’d get nothing.
The third most important thing you need to consider in debt settlement is your negotiating skills. Do you see yourself as a good negotiator? This definitely takes certain skills and not everyone possesses them.
What if you don’t want to negotiate with your creditors?
You’ll remember that earlier in this article we posed the question, ” do you need to hire a debt settlement company?” For some people hiring a BBB accredited company like National Debt Relief to settle their debts for them would be a better option. For one thing, when you hire a debt settlement company you don’t have to be prepared to pay off your settlements immediately.
Instead, you would send funds to the settlement company, which if it were an ethical one, would deposit it in a trust account that you control. When the company successfully negotiates a settlement, you then release the funds necessary to pay for it.
A professional debt settlement company has counselors that are skilled and experienced negotiators. The odds are that one of them would be able to negotiate a better settlement then you could yourself.
Most people are unable to deposit enough money to their trust accounts to pay for all their settlements. If this turns out to be true for you a professional debt settlement company will offer you a payment plan that would allow you to completely pay off your remaining debt in two to four years – depending on the original size of your debt. This would in effect consolidate your debts in that you would have only one payment to remember and make a month instead of the multiple ones you may have been making in the past.