How to go about settling your debt?

Debt settlement is a way through which individuals who owe massive amounts of money can reduce their obligations and lessen the stress that comes along with them. While the idea sounds great and is far more appealing than declaring a state of utter bankruptcy, it is advisable to avoid debt settlement. One of the biggest reasons is that it negatively affects your credit score.

There are alternatives to settling your debt such as debt management or debt consolidation plans. These are less drastic and thus, more recommended. Therefore, it is advised to acquire proper credit counseling before jumping to solutions that you think are right for you but may not be so.

Sometimes, however, some people are not in a position to acquire debt management or consolidation plans. They are the ones who end up being debt settlement leads that are purchased by companies who provide negotiation services regarding financial obligations. If you happen to be one of such people for whom debt settlement appears to be the right option, there are a few pointers you must keep in mind before going down this route. These are given below.

1. Stop waiting until the last minute

A mistake often made by people is that they wait until the last moment to talk to their creditors about being unable to pay fully in time. Typically, when payments are delayed for six months, the account is labeled ‘charged-off’ by the lender. This is done because the lender realizes that his chances of getting paid are slim. However, this doesn’t eliminate the debt itself. Therefore, it is highly advisable that you speak to your lender as quickly as possible, without waiting and hoping that the person you owe money will eventually go away if you don’t pay. Early discussions and negotiations may even result in you acquiring a better deal than a settlement of the debt. You may even be able to formulate a debt management plan!

2. Get prepared for financial transparency

You will need to provide evidence to creditors and debt settlement companies (if you hire one). This will be done by showing them your outstanding bills, income, and asset documents. It is a requirement because lenders and firms dealing with your financial burden need to be sure that they are negotiating and offering a settlement to someone who is in dire need of it.

3. Set realistic plans

If you’re already struggling with monthly rent payments, it would be foolish to set new amounts at unrealistically high levels. The right thing to do is to formulate a prudent plan where the monthly payments are at a level that you can manage financially.

4. Stay on top of your records

Once you hire the services of a debt arbitration company, do not think you can now sit back and relax. The firm handling your account is supposed to file reports with the credit bureaus about your settlement payments. However, failure to do so by the company will result in your account being left labeled as ‘Delinquent.’ It is much worse for your credit report than the label ‘debt settled.’ Therefore, don’t get lazy and make sure your account is settled.