When we take out our first loan, we often think that paying it will be easy. As we keep raking up charges on our credit card, we keep telling ourselves that we can pay it off next month. These are the biggest lies people say up until the incessant calls from their creditors wake them up from their dream. The average American adult carries close to $6348 in credit card debt, paying approximately 15.54% in APR. In 2018, we have spent close to $104 billion in credit card fees and interests. It is almost 35% more than what Americans paid back in 2013.
The debt in the country is growing and evolving. It is making it almost impossible for the citizens on a fixed income to pay off their debts. Most people are hopping from one instrument of debt to another that only results in the cycling of credit. That results in accumulating more debt in the process and higher interest rates from the non-payment of the initial dues. With each passing day, they keep falling behind. If you can relate to a situation like this, you must stop worrying at once and continue reading!
How can you save with debt settlement?
According to a report by the Hemming Morse LLP, a public accounting firm, about 400,000 consumers with 2.9 million accounts opted in for debt settlement programs between January 2011 and March 2017. Over 95% of the clients have received their savings over the fees. Additionally, they saw their first account settlements between the first four and six months of enrolling in their debt settlement program. Debt settlement can become your way out of the debt cycle without paying the dues in full.
As per data from AFCC, debt settlement is THE cheapest option for all Americans, who are struggling with multiple debt payments per month. If you are unable to pay the total amount you owe every month, you should seek NFCC and FCAA accredited debt settlement programs near you. Check the debt settlement ratings of the companies you shortlist before picking the best one. Debt negotiation is more effective as compared to credit counseling and debt management. As a consumer, you can conduct your own settlement negotiations with the creditor(s). The settlement offers can range from 10% to 50% of the amount you owe to the creditor. Getting the numbers right is difficult for a consumer without the working knowledge of debt settlement. Since convincing the creditor to accept an amount that is lesser than what you owe can be challenging.
There will be a period when your debt settlement company will ask you to stop paying the creditors and divert the funds towards a new bank account. Your debt relief officer should explain the effects it can have on your credit record in detail. Debt settlement can save $2.64 per $1 you spend on debt settlement. The debt settlement company can only collect their fee as a percentage of the amount you save after paying the negotiated amount to the creditor. Speaking with a tax attorney or your accountant can help you find ways to save on income tax on the money you save after settling with your lending parties.
What is the cost of debt settlement?
Interestingly, consumers who have not been paying any dues to their creditors have better chances of settling for a lower than the total payment amount than those consumers, who have been paying, even sporadically. If you are finding it difficult to make payments, you should speak with a debt relief agency as soon as possible instead of making sporadic payments to your lenders. Although it seems ironic, it is possible because the first step of debt settlement is to stop making all payments to existing debtors. As a result, a sudden drop of FICO score is almost unavoidable, but the process works in favor of the consumer in the long run.
Not all expenses come in the form of fees or penalties. Sometimes a hit on the credit score can be an unexpected cost as well. A sharp drop in the FICO score might come as a hidden cost to many attempting to settle a debt for the first time, but it is an after effect of stopping the payments before negotiations. In fact, settling for lesser than the amount you owe can also impact your credit score negatively. Your credit score can plummet to the mid-500s by the end of your settlement process. Although many believe that a bad credit score is the end of their prosperity, it is not true. A bunch of “settled” dues is any day better than “unpaid” dues. Since debt settlement is cheap, you will have enough money to pay your bills and disburse money towards the smaller debt payments you might have. Over time, your FICO score will improve as you keep using your credit card moderately and paying the smaller loan amounts on time.
Which debt settlement plan is ideal for you?
Not all debt settlement programs are equal. While some will require you to make a single lump sum payment to clear your debt, others might require regular payments of a fixed amount. How you proceed will depend upon your financial situation. If you want to make a single payment, you might want to pull your monthly expenses together and consider ways to save money. You can think about saving money in an interest-bearing account. Scour the banks in your locality and speak with your debt settlement representative. It should give you a good idea about the different account types you can use to save the payments.
Paying on a monthly basis might be easier for many once the debt settlement company brokers a new payment term with the creditors. However, this sort of a settlement is rare. Your debt settlement officers should be able to guide you optimally towards a payment plan that fits your finances. Always check the success rate of the company, read their client reviews and find out about their client support before you pull out the paperwork.
Marina Thomas is a marketing and communication expert. She also serves as a content developer with many years of experience. She helps clients in long-term wealth plans. She has previously covered an extensive range of topics in her posts, including money saving, Budgeting, business debt consolidation, business, and start-ups.